Nanci Purchases All of the Assets of Michael's Security Service

question 51

Multiple Choice

Nanci purchases all of the assets of Michael's Security Service for $200,000.The assets are as follows:

$\begin{array}{lrr}\text { Asset } & \text { Adjusted Basis } & \text { Fair Market Value } \\\text { Inventory } & \$ 25,000 & \$ 50,000 \\\text { Equipment } & 60,000 & 40,000 \\\text { Supplies } & 20,000 & 20,000 \\\text { Building } & 80,000 & 95,000 \\\text { Land } & 10,000 & 20,000\\\hline &\$195,000&\$225,000\end{array}$
What is Nanci's basis in the equipment?

• A)$17,776
• B)$35,556
• C)$40,000
• D)$60,000
• E)$61,538

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Definitions:

Coupon

The yearly payment of interest to those holding bonds, represented as a percentage of the bond's nominal value.

Semi-Annual Coupon

A bond payment made to bondholders twice a year, representing interest on the bond's face value.

Effective Annual Yield

The actual interest rate an investment earns in a year, taking into account the effects of compounding.

Maturity

The final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.