The owner of M&N Milling machine exchanged a milling machine used in his busines

Question

The owner of M&N Milling machine exchanged a milling machine used in his business for a new one. M&N Milling Basis in the machine was $20,000 and the owner still owes $6,000 related to the purchase of the machine. The other party to the exchange, M Grinding, assumed the liability along along with the machine and transfered a new owner and smaller machine worth $30,000 to M&N Milling.

Calculate M&N Milling's:

Realized gain on the machine.

Recognized gain on the exchange.

Calculate the adjusted basis of the newer machine.

Explanation / Answer

M&N Milling's:

Realized gain on the machine = $30,000 - $20,000 = $10,000

Recognized gain on the exchange= $30,000 - $20,000 - $6,000 = $4,000

Adjusted basis of the newer machine.

= $26,000

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