On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:
On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 11MCQ
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On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:
Assets | Basis | Fair Market Value |
Cash |
$ 5,000 | $ 5,000 |
Accounts Receivable | 20,000 | 20,000 |
Inventory (LIFO) | 20,000 | 40,000 |
Equipment ( |
30,000 | 45,000 |
Total Assets | $75,000 | $110,000 |
Liabilities | ||
Accounts payable | $20,000 | $ 20,000 |
Equity | 55,000 | 90,000 |
Total liabilities and equity | $75,000 | $110,000 |
P properly elects § 338. S’s tax rate is 21 percent.
a. What is the aggregate basis of S’s assets after this transaction?
b. What is the basis for each individual asset?
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