Question

wanting to finalize a sale before year-end, on december 29, wr outfitters sold to bob a warehouse and the land for $125,000. note: do not round intermediate calculations. round your final answers to the nearest whole dollar amount. a. what is bob's basis in the warehouse and in the land if the appraised value of the warehouse was $75,000 and the appraised value of the land was $100,000?

Answer 1

Bob's basis in the warehouse is $53,571 and in the land is $71,429, based on the purchase price and the proportional appraised values.

Step-by-step explanation:

When Bob purchased the warehouse and land for $125,000, and the appraised values are $75,000 for the warehouse and $100,000 for the land, the total appraised value is $175,000. However, Bob paid less than the appraised value, so we need to apportion the purchase price between the two assets based on their relative appraised value contributions.

The warehouse's appraised value represents approximately 42.86% (75,000 / 175,000) of the total, and the land represents about 57.14% (100,000 / 175,000). Multiplying these percentages by the purchase price gives us the cost basis for each: $53,571 for the warehouse (125,000 * 42.86%) and $71,429 for the land (125,000 * 57.14%), rounding to the nearest whole dollar amount.

Therefore, Bob's basis in the warehouse is $53,571, and in the land is $71,429.