Question

Question 10 of 30. Jessica purchased a business from Lauren. The sale included cash, permits, goodwill, a building, futures in the building, and accounts receivable. In what order are the assets' values assigned to determine Jessica's basis in each asset? O O O O Goodwill, permits, accounts receivable, building and fixtures, cash, Cash, accounts receivable, building and fixtures, permits, goodwill. Any order that Lauren and Jessica agree upon. Building and fixtures, accounts receivable, cash, permits, goodwill. Mark for follow up Summary Next >> << Back Save / Return Later

Answer 1

In following order asset's values assigned to determine Jessica's basis in each asset

Cash, accounts receivable, building and fixtures, permits, goodwill

IRS has made some rules for allocation of purchase price and which are in following order

(1) Cash

(2) Deposit Certificate, U.S Government securities, foreign currency,Stock and security,

(3) Accounts Receivable, Debt instrument,

(4) Inventory, Property primarily held for sale to customers

(5) Furniture, Fixtures, Building, Land, Vehicles, and equipment usually fall into this category, all other asset which are not fit anywhere.

As per above listed IRS rule option 1 in which goodwill first listed which is wrong. In Option 3 any order that Lauren and Jessica agree upon, which is not as per IRS rules and in option 4 building and fixtures first listed which is also not as per IRS rules so only option 2 is fitted as per above listed IRS rules.

(6) Intangible assets other than goodwill and going concern value. e.g Copyright and Patent

(7) Goodwill and going concern