Babex IncAnd OMG Company Entered into an Exchange of Real Property

question 93

Multiple Choice

Babex Inc.and OMG Company entered into an exchange of real property.Here is the information for the properties to be exchanged. Pursuant to the exchange,OMG assumed the mortgage on the Babex property.Compute OMG's gain recognized on the exchange and its tax basis in the property received from Babex.

• A)$175,000 gain recognized; $514,500 basis in Babex property.
• B)No gain recognized; $689,500 basis in Babex property.
• C)No gain recognized; $514,500 basis in Babex property.
• D)None of the choices are correct.

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Definitions:

Competitive Market

A market structure characterized by a large number of buyers and sellers, free entry and exit, and a product for which there are many substitutes.

External Benefit

A benefit that people other than the consumer or producer enjoy, resulting from a transaction or activity.

Economic Efficiency

A condition in which all available resources are utilized in the most effective manner to satisfy society's needs and wants, minimizing waste and maximizing value.

Market Price

The current market value at which an asset or service is up for sale or purchase.