Gain LACKS Commercial Substance

Loss WITH Commercial Substance Gain WITH Commercial Substance NO BOOT RECEIVED

COST OLD $ 104,000 COST OLD $ 104,000 COST OLD

A/D $ 64,000 A/D $ 64,000 A/D
BV OLD $ 40,000 BV OLD $ 40,000 BV OLD
FV OLD $ 37,000 FV OLD $ 46,000 FV OLD
CASH PAID $ 20,000 CASH PAID $ 20,000 CASH PAID

Step 1 Realized G/L Step 1 Realized G/L Step 1 Realized G/L

FV OLD - BV OLD $ (3,000) FV OLD - BV OLD $ 6,000 FV OLD - BV OLD

Step 2 Recognized G/L Step 2 Recognized G/L Step 2 Recognized G/L

RECOGNIZE Commercial Substance? Y Commercial Substance?
RECOGNIZE Boot Received?
Do NOT Recognize

DR: NEW PP&E $ 57,000 DR: NEW PP&E $ 66,000 DR: NEW PP&E
DR: Loss $ 3,000 DR: A/D $ 64,000 DR: A/D
DR: A/D $ 64,000 CR: OLD PP&E $ 104,000 CR: OLD PP&E
CR: OLD PP&E $ 104,000 CR: GAIN $ 6,000 CR: CASH
CR: CASH $ 20,000 CR: CASH $ 20,000

NEW PP&E FV OLD + CASH PAID NEW PP&E FV OLD + CASH PAID NEW PP&E

G/L FV OLD - BV OLD G/L FV OLD - BV OLD G/L

ain LACKS Commercial Substance Gain LACKS Commercial Substance
NO BOOT RECEIVED BOOT RECEIVED < 25%

$ 104,000 COST OLD $ 100,000

$ 64,000 A/D
$ 40,000 BV OLD $ 100,000
$ 46,000 FV OLD $ 102,000
$ 2,000 CASH PAID
CASH RECEIVED $ 15,000
FV NEW $ 87,000 *MUST BE GIVEN TO US

Step 1 Realized G/L Step 1 Realized G/L

$ 6,000 FV OLD - BV OLD $ 2,000

Step 2 Recognized G/L Step 2 Recognized G/L

N Commercial Substance? N
N Boot Received? Y
Do NOT Recognize % Cash Received > 25%? 14.706% (Cash Received / Total Cash Received + FV NEW)
RECOGNIZE PORTION

$ 42,000 DR: NEW PP&E $ 85,294 PLUG!!!

$ 64,000 DR: CASH $ 15,000
$ 104,000 CR: OLD PP&E $ 100,000
$ 2,000 CR: GAIN $ 294

BV OLD + CASH PAID NEW PP&E PLUG!!!

NONE G/L (FV OLD - BV OLD) * (Cash RECEIVED / (CASH REC. + FV NEW)
 Gain LACKS Commercial Substance
BOOT RECEIVED >25%

COST OLD $ 100,000

A/D
BV OLD $ 100,000
FV OLD $ 102,000
CASH PAID
CASH RECEIVED $ 50,000
FV NEW $ 52,000 *MUST BE GIVEN TO US

Step 1 Realized G/L

FV OLD - BV OLD $ 2,000

Step 2 Recognized G/L

Commercial Substance? N
Boot Received? Y
% Cash Received > 25%? 49.020% (Cash Received / Total Cash Received + FV NEW)
RECOGNIZE ENTIRE GAIN

DR: NEW PP&E $ 52,000 PLUG!!!

DR: CASH $ 50,000
CR: OLD PP&E $ 100,000
CR: GAIN $ 2,000

NEW PP&E PLUG!!!

G/L (FV OLD - BV OLD)