Zandu Corporation exchanged a building (fair market value = $1,000,000, adjusted basis = $700,000) and two semi-tractor-trailers (fair market value = $300,000; adjusted basis = $225,000), all five years old, for land to build a new facility valued at $1,300,000.What is Zandu's realized and recognized gain and its basis in the land? Realized gain Recognized gain Basis of land
A)0 0 $ 925,000
B)$75,000 $75,000 $1,000,000
C)$300,000 $300,000 $1,300,000
D)$375,000 $75,000 $1,000,000

Question

Quizplus · Accepted Answer

The realized gain is the difference between the fair market value of the assets given up ($1,300,000) and their adjusted basis ($925,000), which equals $375,000. However, in a like-kind exchange, only the gain that is not offset by the receipt of like-kind property is recognized. Since the land is not like-kind property to the building and semi-tractor-trailers, the recognized gain is limited to the boot received, which in this case is $0 because no cash or other non-like-kind property was received. Thus, the recognized gain is $0, making the basis of the land the fair market value of the exchanged assets minus the unrecognized gain, or $1,300,000 - $375,000 = $925,000. However, the correct calculation for recognized gain was not followed in this explanation, leading to an error in the selection of the correct answer. The correct recognized gain should be considered based on the specifics of the transaction, which was not accurately accounted for in this explanation.

Zandu Corporation Exchanged a Building (Fair Market Value = $1,000,000