7. Koch traded machine 1 for machine 2. Koch originally purchased machine 1 for

Question

7. Koch traded machine 1 for machine 2. Koch originally purchased machine 1 for $75,500 and machine 1's adjusted basis was $40,250 at the time of the exchange. Machine 2's seller purchased it for $64,750 and machine 2's adjusted basis was $55,250 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?

MULTIPLE CHOICE

$40,250

$49,750

$55,250

$75,500

None of the choices are correct

8. Butte sold a machine to a machine dealer for $51,000. Butte bought the machine for $54,000 several years ago and has claimed $12,000 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

MULTIPLE CHOICE

$9,000 1231 loss

$3,000 1231 loss

$9,000 ordinary gain

$9,000 capital gain

None of the choices are correct

9. Sadie sold 10 shares of stock to her brother, George, for $680 six months ago. Sadie had purchased the stock for $960 two years earlier. If George sells the stock for $1,240 six months later, what is the amount and character of his recognized gain or loss in the current year?

MULTIPLE CHOICE

$0

$280 SHORT TERM CAPITAL GAIN

$280 long term capital gain

$560 short term capital gain

None of the choices are correct

Explanation / Answer

7 a) 40250 $. Since no boot was transferred , Koch's basis in new machine is the basis in its old machine.

8) is 9000$ capital gain

9) Sadie's loss of $ 280 is deferred and her brother receives a dual basis in the stock. If he sells the stock at a gain, he receives a $960 carryover basis from Sadie. If he sells the stock at a loss he receives a $680 cost basis in the stock. Sadie's basis and holding period are transferred to George, so he receives a $280 ($1240 proceed less $960 basis) long-term gain on the sale.

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