Question

On July 1, 2012, in connection with a recapitalization of Yorktown Corporation, Robert Moore exchanged 1,000 shares of stock which cost him $95,000 for 1,000 shares of new stock worth $108,000 and bonds in the principal amount of $10,000 with a fair market value of $10,500. What is the amount of Moore’s recognized gain during 2012?
A. $0
B. $23,000

C. $10,500

D. $23,500

Answer 1

Answer:

The correct answer is D. $23,500.

Explanation:

This problem requires us to calculate gain on disposal of share. To calculate gain on disposal we will deduct cost of shares disposed off from fair value of financial assets acquired. The detail calculation is given below.

New stock               $ 108,000

FV of Bond              $  10,500

Less:

Cost of stock sold   $  (95,000)

Gain on disposal     $  23,500