Question

1.Firm R owned depreciable real property subject to a $300,000 nonrecourse mortgage. The property’s FMV is only $250,000. Consequently, the firm surrendered the property to the creditor rather than continuing to service the mortgage. At date of surrender, Firm R’s adjusted basis in the property was $195,000.

Required:
Determine Firm R’s cash flow consequences of the disposition, assuming that the gain recognized is taxed at 21 percen?

2.Calvin Corporation’s office was burglarized. The thieves stole 10 laptop computers and other electronic equipment. The lost assets had an original cost of $35,000 and accumulated tax depreciation of $19,400. Calvin received an insurance reimbursement of $10,000 related to the theft loss.

Required:
Determine the amount and character of gain or loss recognized as a result of this theft.

Answer 1

1.Basis of Firm R in depreciable property = $195,000

Mortgage liability = $300,000

Hence gain due to set off of mortgage = $300,000 - $195,000 = $105,000

There will not be any cash inflow due to settlment of property against liability but cash outflow as firm R has to pay taxes on gain recognized = $22,050

We are allowed to do only one question...kindly repost the second question to get the solution for the same.

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