Question

Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of equipment is $108,000. What is Sebastian’s basis in these two assets?

 

 

Answer 1

Calculation of the total fair market value:

Total fair market value = (Fair market value of first piece of equipment + Fair market value of

                                           second piece of equipment)

= $72,000 + $108,000

= $180,000

Therefore, the total fair market value is $180,000.

 

Explanation:

It is given that fair market value of first piece of equipment is $72,000 and fair market value of second piece of equipment is $108,000. Total fair market value is calculated by adding both the equipment’s fair market value. Therefore total fair market value is $180,000.

 

Calculation of “S” basis in assets:

“S” basis in first piece of assets = Fair market value of first piece/Total fair market value × Purchase cost

= $72,000/$180,000 × $100,000

= $40,000

 

“S” basis in first piece of assets = Fair market value of second  piece/Total fair market value × Purchase cost

= $108,000/$180,000 = × 100,000

= $60,000

 

Therefore, “S” basis in first piece of assets is $40,000 and second piece of assets is $60,000.

 

“S” basis in first piece of assets is $40,000 and second piece of assets is $60,000.

Explanation:

It is given that cost of equipment is $100,000. It is calculated that total fair market value is $180,000. The basis can be calculated by dividing fair market value of asset by total fair market value. Purchase cost should be multiplied with that. Therefore, “S” basis in first piece of assets is $60,000 and second piece of assets is $60,000.

 

 “S” basis in first piece of assets is $40,000 and second piece of assets is $60,000.

 “S” basis in first piece of assets is $40,000 and second piece of assets is $60,000.