Question 1: Jane has a machine with an adjusted basis of $15,000 and value of $40,000 She exchanges

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Question 1:

Jane has a machine with an adjusted basis of $15,000 and value of $40,000 She exchanges the machine in a qualifying like-kind exchange for a machine also valued at $40,000

1 Does Jane have a gain or loss? What is her basis in the machine acquired?

2 Assume that Jane exchanges the machine for a new one She is given a $16,000 trade allowance, and pays $20,000 in cash Does she have a gain or loss? What is her basis in the machine acquired?

Question 2:

Smith Couriers, Inc exchanges 3 delivery trucks valued at $80,000 and with a basis of $50,000 for 3 different delivery trucks with a fair market value of $60,000 Because the acquired trucks had a lower fair market value, Smith receives $10,000 in cash

1 What is the gain or loss?

2 What is the deferred gain or loss?

3 What is the basis in the 3 acquired trucks?

Question 3:

Jaime’s home was completely destroyed by flooding in 2016 He purchased the home in 2010 for $175,000 including $50,000 allocated for the land

1 What is Jaime’s loss (assuming he had no insurance)?

2 If Jaime’s adjusted gross income is $80,000, what is his deductible loss?

3 Assume Jaime had insurance and received $160,000 in insurance proceeds to rebuild his home What is his realized gain or loss?

4 What is the recognized gain or loss if he elects to build a smaller home and only uses $120,000 of the insurance proceeds to build the replacement home?

Question 4:

Denver Corporation sells the following equipment and warehouse on June 3, 2016:

Item

Cost

Date Acquired

Depreciation

Selling Price

Equipment

90,000

2012

60,000

40,000

Machine

120,000

2013

10,000

145,000

Warehouse

600,000

2014

65,000

640,000

1 What is the gain or loss for each asset? Be sure to identify the character

2 What is the total of each type of gain or loss? How will these affect Denver Corporation’s net income?

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