Courtney is interested in purchasing The Matrix Company.Matrix's assets are:

I.If Courtney buys the stock of The Matrix for $225,000,the total basis in the assets will be $200,000.
II.If Courtney pays Matrix $240,000 for the Matrix assets,Courtney's total basis in all of the assets of the business will be $123,400.

Question

Courtney is interested in purchasing The Matrix Company.Matrix's assets are:  ​
​
I.If Courtney buys the stock of The Matrix for $225,000,the total basis in the assets will be $200,000.
II.If Courtney pays Matrix $240,000 for the Matrix assets,Courtney's total basis in all of the assets of the business will be $123,400.
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Quizplus · Accepted Answer

Both statements are incorrect.
Statement I implies that the stock purchase price ($225,000) is equal to the asset basis ($200,000), which is not necessarily true. The stock price reflects not only the value of the assets, but also other factors like goodwill and potential future earnings of the company.
Statement II implies that the total basis ($123,400) is less than the purchase price ($240,000), which is not possible. The total basis should always be equal to or higher than the purchase price. The statement also does not mention how the assets are being acquired (stock purchase or asset purchase), which can affect the basis calculation.

Courtney Is Interested in Purchasing the Matrix Company