Emily Owns Land for Investment Purposes That Has a FMV

question 317

Multiple Choice

Emily owns land for investment purposes that has a FMV of $300,000 (basis of $260,000) . She exchanges the land, plus $40,000 cash, for a warehouse to be used in her business. The warehouse is worth $420,000, but is subject to a mortgage of $80,000 which Emily will assume. The gain realized by Emily on the exchange is

• A) $120,000.
• B) $80,000.
• C) $160,000.
• D) $40,000.

---

Definitions:

Operating Loss

A financial situation where a business's operating expenses exceed its revenues.

Variable Cost

Expenses that change in proportion with the production activity of a business.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, or insurance.

Operating Income

Operating income is the profit realized from a business's core operations, excluding deductions of interest and taxes.