Question

7. Koch traded machine 1 for machine 2. Koch originally purchased machine 1 for $75,500 and machine 1's adjusted basis was $40,250 at the time of the exchange. Machine 2's seller purchased it for $64,750 and machine 2's adjusted basis was $55,250 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?

MULTIPLE CHOICE

$40,250

$49,750

$55,250

$75,500

None of the choices are correct

8. Butte sold a machine to a machine dealer for $51,000. Butte bought the machine for $54,000 several years ago and has claimed $12,000 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

MULTIPLE CHOICE

$9,000 1231 loss

$3,000 1231 loss

$9,000 ordinary gain

$9,000 capital gain

None of the choices are correct

9. Sadie sold 10 shares of stock to her brother, George, for $680 six months ago. Sadie had purchased the stock for $960 two years earlier. If George sells the stock for $1,240 six months later, what is the amount and character of his recognized gain or loss in the current year?

MULTIPLE CHOICE

$0

$280 SHORT TERM CAPITAL GAIN

$280 long term capital gain

$560 short term capital gain

None of the choices are correct

Answer 1

1. Answer : Option A , $ 40,250

Explanation;

The exchange qualifies as a like-kind exchange since no boot was transferred, Koch basis in the new machine is the basis in its old machine.

2. Answer : Option C , $9,000 Ordinary Gain.

Explanation;  

$54,000 - $51,000 = $3000 Batte's Gain or Loss = $12,000 - $3000 = $9,000 $9,000 Ordinary Gain

3. Answer : Option $280 Long Term Capital Gain

Explanation ;

Sadies loss of $280 is deferred and her brother receives a dual basis in the stock. If he sells the stock at a gain , he receives a $960 carryover basis from Sadie. If he sells the stock at a loss he revives $680 cost basis in the stock. Sadies basis and holding period are transferred to George, so he receives a $280 ($1,240 - $960) long term capital gain on the sales.