Lu Is Interested in Purchasing the Assets of Idaho Potato

question 103

Multiple Choice

Lu is interested in purchasing the assets of Idaho Potato Chip Company.Idaho's assets are:
$$\begin{array} { l c r } & \text { Adjusted Basis } & \text { Fair Market Value } \\\text { Cash } & \$ 2,300 & \$ 2,300 \\\text { Inventory } & \$ 16,500 & \$ 19,200 \\\text { Equipment }& \$ 13,000 & \$ 9,000 \\\text { Land } & \$ 10,000 & \$ 40,500 \\\text { Building } & \$ 76,600 & \$ 129,000 \\\hline &\$ 18,400 & \$ 200,000\end{array}$$
All of the following statements are correct except:

• A)If Lu pays $225,000 for the assets, Lu's basis in the tangible assets will be $200,000.
• B)If Lu buys the stock of Idaho for $225,000, the basis in the assets wll be $118,400.
• C)If Lu pays $225,000 for the assets, Lu will have a basis in the building of $129,000.
• D)If Lu buys the stock of Idaho for $225,000, he will recognize goodwill, of $25,000.

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Definitions:

Lithosphere

The outermost layer of Earth, comprising the crust and the upper mantle, characterized by its solid and rigid properties.

Earth's Volume

The total three-dimensional space occupied by Earth, calculated to be around 1 trillion cubic kilometers.

Nonrenewable Resources

Resources that do not replenish at a sustainable rate compared to their consumption, including fossil fuels and minerals.

Asthenosphere

A highly viscous, mechanically weak region of the upper mantle beneath the Earth's lithosphere.