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:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![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:
Basis
Fair Market
Value
Assets
Cash
$ 5,000
$ 5,000
Accounts Receivable
20,000
20,000
Inventory (LIFO)
20,000
40,000
Equipment (accumulated depreciation of
$10,000)
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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F750ddd65-7b5f-45d4-bb02-b6677c37f52c%2Fb66fe6e7-ca8f-4a51-b949-02200f91dc0b%2Fa11jkz_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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:
Basis
Fair Market
Value
Assets
Cash
$ 5,000
$ 5,000
Accounts Receivable
20,000
20,000
Inventory (LIFO)
20,000
40,000
Equipment (accumulated depreciation of
$10,000)
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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