Question

Darla owns a dress shop called Darla's Darling Dresses. During the past year, Darla traded her current location for a building a little farther out of town. Her current location had an original cost of $150,000 and a fair market value of $225,000 at the time she traded it. Depreciation on the facility totaled $37,500. Darla received a building and lot worth $200,000 and cash of $25,000 in the exchange. She paid sales commissions to the real estate broker of $10,000. Darla's amount realized on the sale is $_______ and the adjusted basis in the assets sold is $_______ producing a realized _______ on the sale of $_______. (11)

Answer 1

Answer:

$215,000

$112,500,

gain,

$102,500

Explanation:

Darla's amount realized on the sale is calculated by adding the dollar value of the building and lot received worth $200,000 plus + the cash of $25,000 in the exchange minus - her expenses on the trade which is the sales commissions to the real estate broker of $10,000;

$200,000 + $25,000 - $10,000 = $215,000.

The adjusted basis in the assets sold is (original cost of current location-Depreciation on the facility) $150,000 - $37,500 = $112,500.

   Since the amount realized on the sale is greater than the  original cost of current location the exchange produced a realized gain.

The  realized gain is (Darla's amount realized on the sale) $215,000 - $112,500 (adjusted basis in the assets sold) = $102,500