In an 80% Purchase Accounted for as a Tax-Free Exchange

question 7

Multiple Choice

In an 80% purchase accounted for as a tax-free exchange, the excess of cost over book value is $200,000. The equipment's book value for tax purposes is $100,000 and its fair value is $150,000. All other identifiable assets and liabilities have fair values equal to their book values. The tax rate is 30%. What is the total deferred tax liability that should be recognized on the consolidated balance sheet on the date of purchase?

• A) $12,000
• B) $60,000
• C) $72,857
• D) $85,714

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Definitions:

Lichen

A symbiotic organism comprised of a fungus and an alga or cyanobacterium, living together on rocks and trees.

Batrachochytrium Dendrobatidis

A pathogenic fungus causing chytridiomycosis, which has been linked to dramatic declines in amphibian populations worldwide.

Chytrid

A type of fungus belonging to the phylum Chytridiomycota, notable for being parasitic or pathogenic in some aquatic species.

Parasite

A living entity that resides within or on a host organism, deriving its nourishment to the detriment of the host.