Question

prater incorporated enters into an exchange in which it gives up its warehouse on 10 acres of land and receives a tract of land. a summary of the exchange is as follows:transferredfmvoriginal basisaccumulated depreciationwarehouse$ 435,000$ 308,000$ 47,000land98,00098,000 mortgage on warehouse40,000 cash31,25031,250 assets receivedfmvland$ 524,250what are prater's realized and recognized gain on the exchange and its basis in the assets it received in the exchange?

Answer 1

Prater Incorporated realized a gain of $214,250 and recognized a gain of $214,250 on the land exchange. The basis in the assets received is $475,250.

Step-by-step explanation:

Prater Incorporated realized a gain of $214,250 on the land exchange. This gain is calculated by subtracting the original basis ($308,000 warehouse basis + $98,000 land basis) from the fair market value (FMV) of the assets received ($524,250 FMV land). Prater Incorporated's recognized gain on the exchange is equal to the realized gain because there are no boot or cash payments involved.

The basis in the assets received in the exchange is equal to the adjusted basis of the assets given up plus any gain recognized minus any loss recognized. In this case, there is no loss recognized. Thus, the basis in the land received would be the original basis of the warehouse ($308,000) minus the accumulated depreciation ($47,000) plus the realized gain ($214,250), which results in a basis of $475,250.

Therefore, Prater Incorporated has a realized gain of $214,250, a recognized gain of $214,250, and a basis of $475,250 in the assets received in the exchange.