41. LO.4 Rod Clooney purchases Agnes Mitchell’s sole proprietorship for $990,000 on August 15, 2013. The assets of the business are as follows:

Asset Agnes’s Adjusted Basis FMV Accounts receivable $ 70,000 $ 70,000 Inventory 90,000 100,000 Equipment 150,000 160,000 Furniture and fixtures 95,000 130,000 Building 190,000 250,000 Land 25,000 75,000 Total $620,000 $785,000 Rod and Agnes agree that $50,000 of the purchase price is for Agnes’s five-year covenant not to compete.

a. Calculate Agnes’s realized and recognized gain.

b. Determine Rod’s basis for each of the assets.

c. Write a letter to Rod informing him of the tax consequences of the purchase. His address is 300 Riverview Drive, Delaware, OH 43015.