Question

Acme Inc. and Beamer Company exchanged like-kind production assets. Acme’s asset had a $240,000 FMV and $117,300 adjusted tax basis, andBeamer’s asset had a $225,000 FMV and a $168,200 adjusted tax basis. Beamer paid $15,000 cash to Acme as part of the exchange. Which of the following statements is true?A.Acme’s realized gain is $122,700 and recognized gain is -0-.B. Beamer’s realized gain is $56,800 and recognized gain is $15,000.C. Acme’s basis in its newly acquired asset is $117,300.D. Beamer’s basis in its newly acquired asset is $168,200

Answer 1

Answer:

The answer is; C. Acme's basis in it's newly acquired asset is $117,300

Explanation:

Step 1: Determine Acme's Cost basis, realized gain and recognized gain

Acme's cost basis=$117,300

realized gain=Fair market value+cash received-cost basis

where;

Fair market value=$240,000

cash received=$15,000

cost basis=$117,300

replacing;

realized gain=240,000+15,000-117,300=137,700

Acme had a recognized gain of $137,700

Recognized gain=$15,000 in cash

Step 2: Determine Beamer's Cost basis, realized gain and recognized gain

Beamer's cost basis=$168,200+15,000=$183,200

realized gain=Fair market value-cost basis

where;

Fair market value=$225,000

cost basis=$183,200

replacing;

realized gain=225,000+183,200=$41,800

Acme had a recognized gain of $0

Recognized gain=$0

The answer is; Acme's basis in it's newly acquired asset is $117,300