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PROBLEM 1: Jerry transfers two assets to a corporation as part of a Sec. 351 exchange....

PROBLEM 1:

Jerry transfers two assets to a corporation as part of a Sec. 351 exchange. The first asset has an adjusted basis of $70,000 and an FMV of $50,000. The second asset has an adjusted basis of $70,000 and an FMV of $150,000. The FMV of the stock received is $180,000, and he also receives $20,000 cash. The realized and recognized gain on the second asset is A) $80,000 realized; $20,000 recognized. B) $80,000 realized; $15,000 recognized. C) $20,000 realized; $10,000 recognized. D) $10,000 realized; $10,000 recognized.

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Answer #1

Answer : Option B ; $80,000 Realized ; $ 15,000 Recognized.

Explanation ;

First Asset Second Asset Total
FMV $50,000 $150,000 $200,000
(-)Adjusted Basis $(70,000) $(70,000) $(140,000)
Realized Gain (Loss) $(20,000) $80,000 $60,000
Allocation of Boot $ 5,000 (*) $15,000 (**) $20,000
Recognized Gain 0 $15,000 $15,000

* 50/200 × 20,000 = $5000

** 150/200 × 20,000 = $15,000

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