LiO Company transferred an old asset with a $13,600 adjusted tax basis in exchange for a new asset worth $11,000 and $1,500 cash. Which of the following statements is false?
A) If the exchange is taxable, LiO recognizes an $1,100 loss.
B) If the exchange is nontaxable, LiO recognizes no loss.
C) If the exchange is nontaxable, LiO's tax basis in the new asset is $12,100.
D) None of these statements are false.

Question

Quizplus · Accepted Answer

In a taxable exchange, the loss recognized would be the difference between the book value of the old asset and the sum of the cash received plus the fair market value of the new asset received. Here, the book value is $13,600, and the total consideration received is $12,500 ($11,000 + $1,500), leading to a recognized loss of $1,100 if the exchange is taxable, making statement A true. In a nontaxable exchange, generally, no loss is recognized, making statement B true. For statement C, in a nontaxable exchange, the basis of the new asset would typically be the same as the old asset's adjusted basis, adjusted for any cash received or paid, making the basis of the new asset $12,100 ($13,600 - $1,500), assuming the exchange has no other complicating factors. Therefore, none of the statements provided are false.

LiO Company Transferred an Old Asset with a $13,600 Adjusted