Question

Koch traded machine 1 for machine 2 when the fair market value of both machines was $50,000. Koch originally purchased machine 1 for $75,400 and machine 1s adjusted basis was $40,200 at the time of the exchange. Machine 2s seller purchased it for $64,800 and machine 2s adjusted basis was $55,200 at the time of the exchange. What is Kochs adjusted basis in machine 2 after the exchange? Multiple Choice $40,200 $50,000 None of the choices are correct. $75,400 $55,200

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Answer #1

Adjusted Basis in New Asset in exchange in like-kind exchange = Adjusted basis of original asset + Exchange expenses incurred + Cash paid + FMV of property given up + (Liabilities Assumed – Liabilities given up)

= $40,200+0

Hence, the answer is $40,200

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