@BEACPA – I think you explained it quite well to be honest! Just remember also, these are the types of rules that examiners like to test – C Corp, S Corp, and Partnership realized, recognized, and adjusted basis for all of them (most of the time).
For corporations, when calculating the realized gain, it's simply FMV – Adjusted basis in the property. When calculating the recognized gain, its the realized gain to the extent of cash received i.e. boot. For instance, when you are calculating Jone's realized gain you have the FMV of 120,000 and an adjusted basis of 100,000, thus, your realized gain is 20,000. Now, when you are calculating your recognized gain – it's the lesser of your boot received (10,000) and your realized gain (20,000). Here, the recognized gain would be 10,000. Now, if you were to contrast that with how Carey is set up… You have a realized gain of 20,000 (40,000 FMV – 20,000 basis) but you don't have any boot (the corporation did not give you any cash). Thus, your recognized gain is 0.
Now, keep in mind for Jones, if the liability had been larger than the basis, you would recognize the gain to the extent that the liability was higher than the basis (i.e. let's say the liability was 120,000 and the basis was 100,000 = you would have 20,000 recognized gain. The corporation is assuming more liability, thus give you boot). I think this is covered in the very beginning of the chapter.
Finally, you would only use the 60,000 liability you mentioned to come up with Jone's basis. You would only play around with the basis and it's liability when you are looking at Partnership accounting (taking out of the basis, the % of the liability the other guy assumed). Again, your basis was 100,000 and your liability was 60,000 = resulting in a 40,000 basis in the corporation.
I hope this helps rather than confusing you PASS. Let me know if you have more questions.
AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE
IM GOING TO BE A CPA!!!!!
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