Ch 11 HW Solutions

# Ch 11 HW Solutions - 25 Determine the amount of gain or...

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25. Determine the amount of gain or loss realized and the amount of gain or loss to be recognized in each of the following dispositions: a. On October 1, Rufus Partnership sells land to Gerald for which it had paid \$32,000. Gerald agrees to pay Rufus \$15,000 and to assume Rufus's \$13,000 mortgage on the land. In addition, Gerald agrees to pay the \$1,000 in property taxes on the land for the entire year. Rufus realizes and recognizes a loss of \$3,250 on the sale to Gerald. Gerald's amount realized consists of the \$15,000 cash plus the \$13,000 mortgage assumption plus the \$750 [\$1,000 x (9 ÷ 12)] of Rufus's property taxes which are paid by Gerald. Rufus's \$3,250 realized loss is calculated as follows: Amount realized (\$15,000 + \$13,000 + \$750) \$ 28,750 Adjusted basis (32,000 ) Realized loss on sale \$ (3,250 ) The realized loss of \$3,250 is recognized by the partnership. The land is either trade or business use (Section 1231) or investment property (capital loss). b. Carrie sells stock to her brother Dolph for \$4,000 that had cost her \$9,000. Several years later, Dolph sells the stock for \$13,000. Carrie has a realized loss of \$5,000 (\$4,000 - \$9,000) that is disallowed because it is a related party sale. Dolph's realized gain is \$9,000 (\$13,000 - \$4,000). However, Dolph is allowed to reduce his realized gain by Carrie's disallowed loss, resulting in a recognized gain of \$4,000 (\$9,000 - \$5,000). c. Jill wants to refurnish her new home. As part of her refurnishing plan, she sells all her old living room furniture for \$1,800; it had cost her \$4,200. She uses the \$1,800 as a down payment on new furniture costing \$6,000. Jill has a \$2,400 realized loss (\$1,800 - \$4,200) on the sale of the furniture. Because the furniture is a personal use asset, the legislative grace concept does not allow Jill to recognize the loss.

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d. Upon obtaining a job in New City, Gary sells his house for \$130,000. He pays selling expenses of \$12,000. Gary had paid \$60,000 for the house and had added a den at a cost of \$22,000 and a swimming pool costing \$16,000. Gary's amount realized is \$118,000 (\$130,000 - \$12,000). His adjusted basis is \$98,000 (\$60,000 + \$22,000 +\$16,000). The addition of the den and the swimming pool increase Gary's adjusted basis in the property. Gary has a realized gain of \$20,000 (\$118,000 - \$98,000) on the sale. In general, realized gains are recognized. However, if Gary qualifies, all or part of the \$20,000 gain is excluded from income. This is discussed in Chapter 12. 26. Determine the amount of gain or loss realized and the amount of gain or loss to be recognized in each of the following dispositions: a. Jorge owns 800 shares of Archer Company stock. He had purchased 300 of the shares for \$9,000 and 500 of the shares for \$10,000. During the current year, Jorge instructs his broker to sell 400 of the shares when their market value hits \$29. He pays a \$300 commission on the sale. Jorge has a realized and recognized gain on the sale of \$300:
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Ch 11 HW Solutions - 25 Determine the amount of gain or...

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