Question

Koch traded machine 1 for machine 2. Koch originally purchased machine 1 for $75,500 and machine 1's adjusted basis was $40,250 at the time of the exchange. Machine 2's seller purchased it for $64,750 and machine 2's adjusted basis was $55,250 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?A. $40,250B. $49,750C. $55,250D. $75,500E. None of the choices are correct

Answer 1

Answer:

The correct answer is A that is $40,250

Explanation:

Adjusted basis is the term which is defined as it comprise of a change to the recorded at the initial cost of the security or asset. The cost of the security or asset is the initial recorded value, which is to be paid in order to acquire that security.

The exchange stated or qualify as a exchange of like kind. As no boots was transferred, therefore, the Koch basis in the new machine is the basis of the old machine. The adjusted basis of Koch in machine 2 after the exchange will amount to $40,250.