Pettit Company purchased heavy equipment by giving the seller a $30,000 cash down payment and a 5-year interest-bearing note for the $170,000 balance of the price. Compute Pettit's book basis and tax basis in the equipment.

Question

Quizplus · Accepted Answer

The book basis and tax basis in the equipment are both $200,000, which is the total cost of the equipment to Pettit Company ($30,000 cash down payment + $170,000 note payable). Both for accounting (book) purposes and tax purposes, the basis of an asset includes all costs necessary to acquire it and make it ready for its intended use.

Pettit Company Purchased Heavy Equipment by Giving the Seller a $30,000