Courtney is interested in purchasing The Matrix Company.Matrix's assets are:
$\begin{array}{lcc}
& {\text { Adjusted Basis }}& {\text { Fair Market Value } }\
\text { Cash } & \$ 2,300 & \$ 2,300 \
\text { Inventory } & 16,500 & 19,200 \
\text { Equipment } & 13,000 & 9,000 \
\text { Land } & 25,000 & 40,500 \
\text { Building } & 66,600 & \$ 129,000 \
\text { Totals } & \underline {\$ 123,400} & \underline { \$ 200,000}
\end{array}$
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:
$\begin{array}{lcc}
&   {\text { Adjusted Basis }}&  {\text { Fair Market Value } }\
\text { Cash } & \$ 2,300 & \$ 2,300 \
\text { Inventory } & 16,500 & 19,200 \
\text { Equipment } & 13,000 & 9,000 \
\text { Land } & 25,000 & 40,500 \
\text { Building } & 66,600 & \$ 129,000 \
\text { Totals } &  \underline {\$ 123,400} & \underline { \$ 200,000}
\end{array}$
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.

Quizplus · Accepted Answer

Neither statement is correct.

For statement I: If Courtney buys the stock of The Matrix for $225,000, the total basis in the assets will still be $123,400, not $200,000. This is because the basis in the assets for tax purposes carries over from the previous owner.

For statement II: If Courtney pays Matrix $240,000 for the assets, her total basis in all of the assets of the business would be $188,500, not $123,400. This is because she would need to use the adjusted basis values for each asset to calculate her total basis, not the fair market values. The adjusted basis values are used to calculate gain or loss when selling the asset.

Courtney Is Interested in Purchasing the Matrix Company IIf Courtney Buys the Stock of the Matrix for $225,000,the