Jay sold three items of business equipment for a total of $300,000. None of the
ID: 2462618 • Letter: J
Question
Jay sold three items of business equipment for a total of $300,000. None of the equipment was appraised to determine its value. Jay’s cost and adjusted basis for the assets are shown below.
Asset
Cost
Adjusted Basis
Skidder
$230,000
$ 40,000
Driller
120,000
60,000
Platform
620,000
–0–
Total
$970,000
$100,000
Jay has been unable to establish the fair market values of the three assets. All he can determine is that combined they were worth $300,000 to the buyer in this arm’s length transaction.How would Jay allocate the sale price and figure the gain or loss on the sale of the three assets?
Asset
Cost
Adjusted Basis
Skidder
$230,000
$ 40,000
Driller
120,000
60,000
Platform
620,000
–0–
Total
$970,000
$100,000
Explanation / Answer
Sales price is allocated on the basis of adjusted value.
Skidder = 300000 * 40000/100000 = 120000
Driller = 300000*60000/200000 = 180000
Platform = 300000*0/100000 = 0
Gain on sale = Sales price - Adjusted basis amount
= 300000 - (40000 + 60000 + 0)
= 200000
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