Question

1 .Susie and James both own food trucks. Susie sells cupcakes, while James sells gourmet sandwiches. James buys one of Susie’s cupcakes for $5. Later, Susie buys one of James’ sandwiches for $5. Does Susie recognize income?

2. Same facts as above, but James does not want to take cash out of his register before the end of the day. Instead, he offers to trade Susie a sandwich for one of her cupcakes. She accepts the sandwich. Does Susie recognize income?

3. Jennifer purchased a piece of land for $23,000 in 2008. In 2019, Jennifer sold the land in an arms’ length transaction for $36,000. What is the gain on the transaction? What if Jennifer sold the land for $16,000 instead?

Answer 1