You are working for a local accountant during tax season and the accountant has asked you to help with the tax preparation needs of Palo Alto, Inc. Palo Alto is a newly formed hi-tech company that specializes in manufacturing security chips for credit cards. The controller of Palo Alto, Michael Smith, would like your help with the following:

An article in the local newspaper stated that the county government had decided to condemn Palo Alto, Inc.s distribution warehouse. Therefore, Palo Alto decided to sell its warehouse to obtain what it believed would be a better price. The sales price was $350,000, and the companys adjusted basis in the warehouse was $75,000. A month later, the company reinvested all the proceeds received in a new distribution warehouse. Michael Smith would like you to prepare a memo explaining whether Palo Alto will have to recognize any of the gains realized from the sale of its distribution warehouse. PLEASE NO COPIED ANSWERS FROM OTHER ANSWERED QUESTIONS!