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?

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Definitions:

Stated Value

A value that is assigned to a share of stock by the company's board of directors, not based on market value, but used for accounting and reporting purposes.

Excess of Par

The amount by which a security's sale or issue price exceeds its par value.

Treasury Shares

Shares released to the public and afterward reclaimed by the issuer, cutting down the overall count of stock available on the open market.

Journalize

The process of recording transactions in an accounting journal.