Nixon Inc Transferred Asset a to an Unrelated Party in Exchange

question 72

Multiple Choice

Nixon Inc. transferred Asset A to an unrelated party in exchange for Asset Z and $15,750 cash. Nixon's tax basis in Asset A was $400,000, and Asset Z had a $510,000 appraised FMV. Which of the following statements is true?

• A) If Asset A and Asset Z are like-kind property, Nixon recognizes a $15,750 gain and takes a $400,000 basis in Asset Z.
• B) If Asset A and Asset Z are not like-kind property, Nixon recognizes a $110,000 gain and takes a $510,000 basis in Asset Z.
• C) If Asset A and Asset Z are like-kind property, Nixon recognizes no gain and takes a $400,000 basis in Asset Z.
• D) If Asset A and Asset Z are like-kind property, Nixon recognizes a $15,750 gain and takes a $415,750 basis in Asset Z.

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Definitions:

Return On Total Assets

A financial ratio that measures the profitability of a company by calculating how effectively a company uses its total assets to generate profit.

Consolidated Financial Statements

Financial statements that present the assets, liabilities, equity, revenue, expenses, and cash flows of a parent company and its subsidiaries as one entity.

Equity Method

A method of accounting that allows a company to record profits and losses based on its share of ownership in another company.

Controlling Influence

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, typically seen in parent-subsidiary relationships.