Question

Broom Corporation transfers assets with an adjusted basis of​ $300,000 and an FMV of​ $400,000 to Docker Corporation in exchange for​ $400,000 of Docker Corporation stock as part of a taxminusfree reorganization. The Docker stock had been purchased from its shareholders one year earlier for​ $350,000. How much gain do Broom and Docker Corporations recognize on the asset​ transfer?

Answer 1

Both Broom and Docker Corporation have zero gains

Step-by-step explanation:

The price Broom corporation sold it asset is will be detrimental, this is because the price that Broom corporation sold it asset will costs Broom corporation if it wants to use it assets and the cost well be for the rest of their life. Also as we can see, Docker corporation will not have any gain on the stock repurchased sold this is so, because in accounting standard, it is not permitted. The two corporation assets that were exchange by companies has equal or fair Market value which was equal to the amount both of them received.

Answer 2

Niether of the party to contract earned any gain on this investment

Step-by-step explanation:

The reason is that the both companies exchanged assets whose Fair Market value was equal to the amount received. This is because the Baron Corporation would would had written down its asset at FMV which means the asset is sold at a price that actually costs the Broom Corporation if it uses the asset for its rest of the life. Furthermore, the Docker will also not recognize any gain on the stock repurchased sold because it is not permitted in the accounting standard.