Gold company was experiencing financial difficulties

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South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
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Chapter 4 / Exercise 16
South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
Raabe/Young/Nellen/Hoffman
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84. Gold Company was experiencing financial difficulties, but was not bankrupt or insolvent. The National Bank, which held a mortgage on other real estate owned by Gold, reduced the principal from $110,000 to $85,000. The bank had made the loan to Gold when it purchased the real estate from Silver, Inc. Pink, Inc., the holder of a mortgage on Gold’s building, agreed to accept $40,000 in full payment of the $55,000 due. Pink had sold the building to Gold for $150,000 that was to be paid in installments over 8 years. As a result of the above, Gold must: A. Include $40,000 in gross income.B. Reduce the basis in its assets by $40,000.C. Include $25,000 in gross income and reduce its basis in its assets by $15,000.D. Include $15,000 in gross income and reduce its basis in the building by $25,000.E. None of the above.
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South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
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Chapter 4 / Exercise 16
South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
Raabe/Young/Nellen/Hoffman
Expert Verified
85. On January 1, 2003, Cardinal Corporation issued 5% 25-year bonds at par and used the $12,000,000 proceeds to finance the construction of a new plant. On January 1, 2013, the company acquired the bonds on theopen market for $11,500,000. Assuming that Cardinal Corporation is neither bankrupt nor insolvent, the acquisition and retirement of the bonds results in which of the following:
86. Denny was neither bankrupt nor insolvent but was short of cash and could not make the mortgage payments on his personal residence in 2013. The bank that held the mortgage agreed to reduce the principal on the debt from $100,000 to $80,000 so that Denny’s monthly mortgage payments could be reduced to a manageable amount. Denny also had a vacation home with a mortgage whose payments were beyond his means. The mortgage holder on the vacation home agreed to reduce the mortgage from $60,000 to $50,000. The value of thepersonal residence was $80,000 and the value of the vacation home was $45,000 at the dates of the debt reduction.

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