Question

Jay sold three items of business equipment for a total of $300,000. None of the equipment was appraised to determine its value. Jay's cost and adjusted basis for the assets are as follows: Col1 Asset Skidder Driller Platform Total Col2 Cost $230,000 120,000 620,000 $970,000 Col3 Adjusted Basis $40,000 60,000 0 $100,000 Jay has been unable to establish the fair market values of the three assets. All he can determine is that combined they were worth $300,000 to the buyer in this arm’s length transaction.How would Jay allocate the sale price and figure the gain or loss on the sale of the three assets?

Answer 1

Consider the following calculations

Step-by-step explanation:

Step 1. Given information.

Asset Cost Adjusted Basis

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Skidder 230,000 40,000

Driller 120,000 60,000

Platform 620,000 0

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Total 970,000 100,000

Step 2. Formulas needed to solve the exercise.

Allocation for each asset = value sold * (adjusted basis / total)

Gain on sale = Sales price - Adjusted basis amount

Step 3. Calculation and Step 4. Solution.

Sales price is allocated on the basis of adjusted value.

• Skidder = 300.000 * 40.000/100.000 = 120.000

• Driller = 300.000*60.000/100.000 = 180.000

• Platform = 300.000*0/100.000 = 0

Gain on sale = Sales price - Adjusted basis amount

= 300.000 - (40.000 + 60.000 + 0)

= 200.000