Zeppo and Harpo Are Equal Owners of the Marx Corporation

question 55

Multiple Choice

Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $25,000 in cash and property worth $50,000 (adjusted basis of $35,000) for 25% of Marx Corporation's stock. What is Groucho's basis in the Marx Corporation stock?

• A)$45,000
• B)$50,000
• C)$60,000
• D)$75,000
• E)$90,000

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Definitions:

Scrap Value

An asset's anticipated resale value once it has surpassed its period of utility.

Straight-Line Method

A method of calculating depreciation of an asset by evenly distributing its cost over the useful life of the asset.

Scrap Value

The estimated resale value of an asset at the end of its useful life, typically considered as salvage value.

Double-Declining-Balance

A method of accelerated depreciation which doubles the regular depreciation rate, reducing the value of an asset more quickly in its early years.