[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[leglock]

my answer is b

gain realized is 3000

boot received is 2500 (3500-1000) which is also gain recognized

gain deferred is 500 (3000-2500)

basis new is 17000 (fmv new rec'd 17,500 – gain deferred 500)

[kappa1032]

B is correct!

Explanation

Calculations for “New Basis on Like-Kind Property with Liability Assumed (Boot Paid) and Liability Relieved (Boot Received)”

Gain/Loss Realized:

Amount realized

=

Fair market value of new auto + Boot received – Boot paid – Adjusted basis of auto given up

=

$17,500 fair market value new auto + $3,500 in relieved liabilities (boot received) –

$1,000 in liabilities assumed (boot paid) $17,000 adjusted basis of the old auto

($35,000 cost – $18,000 accumulated depreciation)

=

$3,000 gain

Gain/Loss Recognized:

Gain recognized

=

$2,500 [the lesser of realized gain of $3,000 or net relief from liabilities (boot received) of $2,500]

Basis of New Property:

New basis

=

Adjusted basis of property given up + Gain recognized – Boot received + Boot paid

=

$17,000 + $2,500 – $3,500 + $1,000

=

$17,000

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[kappa1032]

Alternate calculation: $17,500 FMV new property – $500 deferred gain = $17,000 basis of new property.

Choice “b” is correct. $17,000 is the basis of the new auto [$17,000 adjusted basis of the old auto ($35,000 cost – $18,000 accumulated depreciation) + $2,500 gain recognized – $2,500 net relief from liabilities (boot received) ($3,500 relief from liability (boot received) – $1,000 liability assumed (boot paid))].

Choice “c” is incorrect. A basis of $14,500 ignores the $2,500 gain recognized.

Choice “a” is incorrect. $17,500 is the fair market value of the new auto.

Choice “d” is incorrect. A basis of $19,500 adds the adjusted basis of the old property and the gain recognized, and ignores the boots paid and received.

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[kappa1032]

Alternate calculation: $17,500 FMV new property – $500 deferred gain = $17,000 basis of new property.

Choice “b” is correct. $17,000 is the basis of the new auto [$17,000 adjusted basis of the old auto ($35,000 cost – $18,000 accumulated depreciation) + $2,500 gain recognized – $2,500 net relief from liabilities (boot received) ($3,500 relief from liability (boot received) – $1,000 liability assumed (boot paid))].

Choice “c” is incorrect. A basis of $14,500 ignores the $2,500 gain recognized.

Choice “a” is incorrect. $17,500 is the fair market value of the new auto.

Choice “d” is incorrect. A basis of $19,500 adds the adjusted basis of the old property and the gain recognized, and ignores the boots paid and received.

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[kappa1032]

@ leglock – when you calculated boot received as $2,500 ($3,500 – $1,000) – that's the net boot received, which I totally get.

What i don't get is why the previous question that I presented did not take into account “net boot received”, but rather just boot received? That is why I'm so confused. Is it because the $1,000 boot paid was in cash rather than a relieved liability?

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[Anonymous]

Did you memorize any sections in the 1933 Act, 1934 Act and SOX?

[leglock]

@ kappa

when you recieve and pay cash, you do NOT net. so if your gain realized is 5, cash recd is 4 and cash paid is 1, u will recognize 4. I believe you never net anything agaainst cash you receive.

if you give up and assume a liability, you DO net.so if your gain realized is 5, liability u give away is 4 and liability u assume is 1, u recognize 3

@cpaby2015

i did memorize the sections becker presented. i want to say that its section 11 from 1933 and possibly 10b from 1934. I took the test in late july so i could be wrong on that.

[Anonymous]

@leglock Thanks! Those sections, plus 404 of SOX are also recommended by Gleim, however I hate memorizing so I'm hoping I can get away without doing it. It seems like I don't have a choice.

[kappa1032]

@leglock – do you have a reference to your explanation that i could find? I'm seeing different answers from different people. What about when realized gain is 5, cash paid is 1 and extra trailer received is $3. By Becker's explanation, recognized gain should be 3.

I searched for this in the forums and found this thread where they actually talked about the question I had: https://www.another71.com/cpa-exam-forum/topic/like-kind-exchange-gain-recognition

In their discussion, they say that if you receive and pay cash, you DO net. SO CONFUSED!!

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[leglock]

yes, i do recall 404 of sox as well.

[jeff]

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Did bonus depreciation get renewed by Congress for 2014?

[leglock]

@kappa:

I pulled out my college textbook when studying for REG to get some clarity on the different iterations of how the problems could be asked and it stated that consideration paid in form of cash or mortgage assumed can be used to offset a liability you give away. I then had handwritten in that cash paid can't be used to offset cash rec'd. So it defintely could be incorrect although I feel as though I had worked a problem whereby this was the appropriate treatment. It appears your resource may be better than mine, so I potentially learned the material incorrectly. I will see if i can find a problem with cash rec'd and paid, and post what I find.

Thanks for bringing this to my attention.

edit — I reviewed that thread you linked to. Unfortunately, DJN linked to something Becker prepared but for me, it was a 404 error which is too bad bc it sounded like it had some good info. Based on the link you provided, I would agree that it seems cash paid can be netted against cash received. I do see that someone said u can net similar items only, but in my textbook it stated you can net cash paid against liability u give away. So now I am thoroughly confused about the rules and just lucky that I finished reg in july. I am curious as to the proper treatment and will be researching it further.

[jeff]

Actually no, no that you mention it.

One part of the answer I left out was this:

Be aware that more than 50 tax breaks that expired in 2013 have not been extended to 2014 as of the July 2014 publication date of this review; they are currently in the U.S. Senate awaiting approval.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[kappa1032]

Thanks Leglock! That Becker link for me didn't work for me either. I submitted the question to Becker last night, so hopefully I can get some clarity on that for everybody.

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[Author]

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