FINANCE-Dr. Dulbit Drillum, partner in the dental firm of Drillum

Dr. Dulbit Drillum, partner in the dental firm of Drillum, Fillum, and Billum, exchanged

an office building (market value = $1,538,000) for an apartment building (market

value = $1,450,000). Dr. Drillum owes $800,000 on a note secured by a mortgage

on his office building, which has an adjusted tax basis of $1,100,000. The building

he will receive in the exchange is encumbered with a mortgage that has a balance

of $700,000. Dr. Drillum incurs transaction costs of $60,000. Each party agrees to

take title subject to the existing mortgage on the substitute building.

a. Assuming that cash will be tendered to balance the equities, how much cash

is tendered and by whom?

b. What is Dr. Drillum’s realized gain on this exchange?

c. What will be Dr. Drillum’s substitute tax basis after the exchange?