On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:
On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:
Chapter6: Corporations: Redemptions And Liquidations
Section: Chapter Questions
Problem 33CE
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Question
On January 1, 2021, P Corporation purchases from an unrelated person all the outstanding stock of S Corporation for $90,000. S’s balance sheet on the purchase date is as follows:
| Assets | Basis | Fair Market Value |
|
Cash |
$ 5,000 | $ 5,000 |
| 20,000 | 20,000 | |
| Inventory (LIFO) | 20,000 | 40,000 |
| Equipment (accumulated |
30,000 | 45,000 |
| Total Assets | $75,000 | $110,000 |
| Liabilities | ||
| Accounts payable | $20,000 | $ 20,000 |
| Equity | 55,000 | 90,000 |
| Total liabilities and equity | $75,000 | $110,000 |
P properly elects § 338. S’s tax rate is 21 percent.
a. What is the aggregate basis of S’s assets after this transaction?
b. What is the basis for each individual asset?
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