A Firm Purchased an Asset with a Five-Year Life for $90,000

question 27

Multiple Choice

A firm purchased an asset with a five-year life for $90,000, and it cost $10,000 for shipping and installation.According to the current tax laws the cost basis of the asset at time of purchase is [blank].

• A)$100,000
• B)$95,000
• C)$80,000
• D)$70,000

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Definitions:

Replacement Cost

The current cost of replacing an asset with a new one of the same kind and quality at current prices.

LIFO-to-FIFO Adjustment

A recalculation process that converts inventory valuation from the Last-In-First-Out (LIFO) method to the First-In-First-Out (FIFO) method, affecting cost of goods sold and inventory value.

Inventory

The total amount of goods and materials held by a company that are available for sale or production.

LIFO

Last In, First Out is a method of valuing inventory in which items that are produced last are sold before those that are produced earlier.