Company Z exchanged old equipment (FMV $16,000) for new equipment (FMV $16,000). Company Z’s tax basis in the old equipment was $9,300.
a. Compute Company Z’s realized gain, recognized gain, and tax basis in the new equipment assuming the exchange was a taxable transaction.
b. Compute Company Z’s realized gain, recognized gain, and tax basis in the new equipment assuming the exchange was a nontaxable transaction.
c. Six months after the exchange, Company Z sold the new equipment for $16,850 cash. How much gain does Company Z recognize if the exchange was taxable? How much gain if the exchange was nontaxable?