The Electric Corporation, a publicly held corporation, owns land with a $1,600,000 basis that is being held for investment. The company is considering exchanging the land for two assets owned by the Quail Corporation: land with a FMV of $4,000,000 and marketable securities with a $1,000,000 FMV. Both assets will be held by the Electric Corporation for investment, although the corporation is considering the possibility of developing the land and building residential houses. The president of the corporation has hired you to prepare a report explaining how the exchange will affect the corporation’s reported net income and its tax liability. The corporation has a tax rate of 34%.
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