Robbie and Mike Exchange Machinery in a Qualified Like-Kind Exchange

question 56

Essay

Robbie and Mike exchange machinery in a qualified like-kind exchange.Robbie's old machine,which originally cost $42,000,has an adjusted basis of $26,000.His old machine is worth $32,000.Since the machine Mike is trading is worth only $27,000 (Mike's basis is $18,000),Mike will even up the exchange by giving Robbie $5,000 in cash.
a.What is Robbie's realized gain (loss)on the machine?
b.What is Robbie's recognized gain (loss)on the machine?
c.What is the character of Robbie's gain or loss on the machine?
d.What is Robbie's basis in his new machine?

---

Definitions:

Purchase Discounts

A reduction in the price paid for goods or services, often granted by the seller as an incentive for early payment.

Freight-In

Freight-in concerns the shipping costs of receiving goods to be sold or used in production, added to the cost of purchased inventory.

Sales Returns and Allowances

Concessions made by the seller, including refunds and reductions in the original selling price for returned goods or deficiencies.

Operating Expenses

Expenses incurred from a company's primary business activities, excluding cost of goods sold, such as rent, salaries, and utility bills.