On January 1, 2020, John Traverse acquires 12,000 units of the RV Income Trust at a cost of $720,000. During 2020, the trust makes a distribution of $5.00 per unit. Of this total $1.50 is a return of capital while the remaining $3.50 is property income. John reinvests the total distribution in RV units at a cost of $55 per unit. What is the adjusted cost base of John's units on December 31, 2020?
A)$58.21 per unit.
B)$53.62 per unit.
C)$59.58 per unit.
D)$60.00 per unit.

Question

Quizplus · Accepted Answer

The adjusted cost base (ACB) is calculated by subtracting the return of capital from the original cost and then adding the cost of reinvested units. Original cost: $720,000. Return of capital: 12,000 units * $1.50 = $18,000. Reinvested units: ($5.00 distribution * 12,000 units) / $55 per unit = 1,090.91 units. New total units: 12,000 + 1,090.91 = 13,090.91 units. New cost: $720,000 - $18,000 + (1,090.91 * $55) = $780,000. ACB per unit: $780,000 / 13,090.91 = $58.21.

On January 1, 2020, John Traverse Acquires 12,000 Units of the RV