LO.4 Irene Andrews is purchasing the assets of a sole proprietorship from Seth. The fair market values of the assets as agreed to by Irene and Seth are as follows:

Asset Seth’s Adjusted Basis Fair Market Value Accounts receivable $ –0– $ 10,000 Notes receivable 15,000 20,000 Machinery and equipment 85,000 110,000 Building 100,000 320,000 Land 200,000 350,000 The purchase price is $950,000.

a. Calculate Seth’s realized and recognized gain.

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

c. Write a letter to Irene informing her of the tax consequences of the purchase. Her address is 300 Riverside Drive, Cincinnati, OH 45207.