Car Co.is selling its land and building to Truck Co.for $340,000 (Land $200,000; Building $140,000).These values have not been officially appraised,and Truck Co.is arguing that the land is only worth $150,000 and the building is worth $190,000.(Car Co.originally paid $100,000 for the land and constructed the building for $150,000.The UCC on the building is currently $130,000.)Which of the following statements is true based on these facts?

Question

Quizplus · Accepted Answer

Under Car Co.'s terms, the total cost of land and building is $340,000, which is the amount that will be used for tax purposes. However, under Truck Co.'s terms, the allocation of the costs is different. The building is allocated a higher value of $190,000, which means that Truck Co. can claim higher CCA on the building, but the UCC on the building will also increase. Additionally, the lower value allocated to the land means that Car Co. will have to recapture a higher amount of CCA upon disposition. Therefore, Car Co. will recognize higher recapture under Truck Co.'s terms.

Car CoIs Selling Its Land and Building to Truck Co