Bob exchanges 4000 shares of Beetle Corporation stock that he had purchased for $800,000 for 6000 shares of Butterfly Corporation common stock with a fair market value of $1,000,000.What is Bob's recognized gain on the exchange and his basis in the Butterfly stock?

Question

Quizplus · Accepted Answer

To calculate the recognized gain on the exchange, we need to determine the realized value and the adjusted basis. The realized value is the fair market value of the Butterfly stock Bob received, which is $1,000,000. The adjusted basis is the original cost of the Beetle stock, which is $800,000. Therefore, the recognized gain is $200,000 ($1,000,000 - $800,000).

To calculate the basis in the Butterfly stock, we need to divide the recognized gain by the number of shares received. This gives us a basis of $33.33 per share ($200,000 / 6,000 shares). Therefore, Bob's basis in the Butterfly stock is $200,000 plus $33.33 per share. The total basis is $400,000 ($200,000 + ($33.33 x 6,000 shares)).

Bob Exchanges 4000 Shares of Beetle Corporation Stock That He