Nagin Inc. transferred an old asset in exchange for a new asset worth $84,000 and $6,000 cash. The old asset and new asset were like-kind properties. Which of the following statements is true?
A) If Nagin's basis in the old asset was $95,000, Nagin can recognize a $5,000 loss.
B) If Nagin's basis in the old asset was $85,000, Nagin must recognize a $6,000 gain.
C) If Nagin's basis in the old asset was $79,200, Nagin must recognize a $6,000 gain.
D) None of these choices are true.

Question

Quizplus · Accepted Answer

In a like-kind exchange, any cash or non-like-kind property received is called boot. In this case, Nagin Inc. received $6,000 cash in addition to the new asset worth $84,000, making the total value of the new property received $90,000. To determine the gain or loss recognized, we need to compare the adjusted basis of the old asset ($79,200) with the total value of the new property received ($90,000).

$90,000 - $79,200 = $10,800 gain

Since Nagin Inc. must recognize any gain on the exchange, the correct statement is that if Nagin's basis in the old asset was $79,200, Nagin must recognize a $6,000 gain. The other statements are incorrect because they either do not recognize the additional boot received or do not properly calculate the gain or loss recognized.

Nagin Inc Transferred an Old Asset in Exchange for a New