Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged.
Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property.
-Compute C&K's gain recognized on the exchange and its tax basis in the property received from Johnson.

Question

Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged.
Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. 
-Compute C&K's gain recognized on the exchange and its tax basis in the property received from Johnson.

Quizplus · Accepted Answer

C&K paid $225,000 boot ($25,000 cash + $200,000 assumption of debt) to acquire the Johnson property. Therefore, its basis in the property is $687,000 ($462,000 substituted basis + $225,000 boot).
 $\begin{array}{lcr} 
& \text { Johnson } & \text { C\&K } \
\text { FMV } & \$ 900,000 & \$ 675,000 \
\text { Adjusted tax basis } & 593,000 & 462,000 \
\text { Mortgage } & 200,000 & -0
\end{array}$