Vibe Company purchased the net assets of Atlantic Company in a business combination accounted for as a purchase.As a result, goodwill was recorded.For tax purposes, this combination was considered to be a tax-free merger.Included in the assets is a building with an appraised value of $210,000 on the date of the business combination.This asset had a net book value of $70,000.The building had an adjusted tax basis to Atlantic (and to Vibe as a result of the merger) of $120,000.Assuming a 40% income tax rate, at what amount should Vibe record this building on its books after the purchase?
$ \begin{array}{lc} & \text { Deferred Tax } \ \text { Building } & \text { Liability }\end{array} $
A)?$174,000$\quad $$\quad $$\quad $$\quad $ $ 0
B)?$140,000 $\quad $$\quad $$\quad $$\quad $$36,000
C)?$210,000 $\quad $$\quad $$\quad $$\quad $$90,000
D)?$210,000 $\quad $$\quad $$\quad $$\quad $$36,000

Question

Quizplus · Accepted Answer

The building should be recorded at its appraised value of $210,000. The deferred tax liability is calculated based on the difference between the building's tax basis ($120,000) and its recorded value ($210,000), multiplied by the tax rate (40%). This results in a deferred tax liability of $36,000.

Vibe Company Purchased the Net Assets of Atlantic Company in a Business