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:

Unilateral Contract

A contract in which one party makes a promise in exchange for the other party's performance, rather than a promise in return.

Prior Unenforceable Obligations

Refers to commitments or agreements that were not legally binding or couldn't be enforced due to certain conditions or deficiencies in their formation.

Consideration

Something of value (such as goods, services, money, or a promise) exchanged between parties in a contract.

Preexisting Contract

An agreement that was already in place before certain actions were taken or before a dispute arose.