Question

Elastigirl owns a piece of real property with an adjusted basis of $480,000 and a fair market value of $1,000,000 and which is subject to a $400,000 mortgage. She exchanges the real property for an office building owned by Screenslaver. The building has an adjusted basis of $400,000 and a fair market value of $500,000. Screenslaver assumes Elastigirl’s mortgage on the land and transfers stock with an adjusted basis of $150,000 and a fair market value of $100,000 to Elastigirl as part of the exchange.

a. What is Elastigirl’s realized and recognized gain or loss on the exchange?

b. What is Screenslaver’s realized and recognized gain or loss on the exchange?

c. What are the parties’ adjusted bases for each piece of property received?

Answer 1

In case of exchange of assets, incoming asset shall be recognised at the its Fair value.

Elasticgirl's Realized & recognized gain:-	Debit Amt	Credit Amt
Mortagage A/c Dr	4,00,000
Office building A/c Dr	5,00,000
Stock A/c Dr	1,00,000
To Real property		4,80,000
To Realized gain		5,20,000
Screen salver's Realized & recognized gain:-	Debit Amt	Credit Amt
Real property A/c Dr	10,00,000
To Office building		4,00,000
To Mortagage		4,00,000
To Stock		1,50,000
To Realized gain		50,000