Question

"Nanci purchases all of the assets of Michael's Security Service for $200,000. The assets are as follows: Asset Adjusted Basis Fair Market Value Inventory $25,000 $50,000 Equipment 60,000 40,000 Supplies 20,000 20,000 Building 80,000 95,000 Land 10,000 20,000 $195,000 $225,000 What is Nanci's basis in the equipment?"

a. $17,776
b. $35,556
c. $40,000
d. $60,000
e. $61,538

Answer 1

option (b) $35,556

Step-by-step explanation:

Given:

Cost of purchase of assets = $200,000

Asset Adjusted Basis Fair Market Value

Inventory $25,000 $50,000

Equipment $60,000 $40,000

Supplies $20,000 $20,000

Building $80,000 $95,000

Land $10,000 $20,000

Total $195,000 $225,000

Now,

since, fair market value is greater than Basis,

Percentage FMV on Equipment =
`\frac{\textup{FMV for equipment}}{\textup{Total FMV}}*100\%`

⇒ Percentage FMV on Equipment =
`\frac{\$40,000}{\textup{225,000}}*100\%`

= 17.77%

thus,

Nanci's basis in the equipment = Percentage FMV × Assets

= 17.77% × $200,000

= $35,555.56 ≈ $35,556

Hence,

The correct answer is option (b) $35,556