Five years ago, Q&J Inc. transferred land with a $345,000 book and tax basis for a different parcel of land worth $472,000. Q&J included its $127,000 realized gain in book income, but the exchange was nontaxable. This year, Q&J sold the parcel of land received in the exchange for $533,000 cash. Which of the following statements is true?

Question

Quizplus · Accepted Answer

When Q&J Inc. exchanged land worth $472,000 for a land with a book and tax basis of $345,000, it resulted in a realized gain of $127,000. However, since the exchange was nontaxable, Q&J did not recognize the gain for tax purposes, resulting in a deferred tax liability. When Q&J sold the land for $533,000, it resulted in a taxable gain of $188,000 ($533,000 sales price - $345,000 tax basis). Since the deferred tax liability associated with the nontaxable exchange has now been reversed due to the recognition of taxable gain, Choice B is the correct option.

Five Years Ago, Q&J Inc