ACCT 401

Wanting to finalize a sale before year-end, on December 29, WR Outfitters sold to Bob a warehouse and the land for $183,000. The appraised fair market value of the warehouse was $96,750, and the appraised value of the land was $160,500. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. What is Bobs basis in the warehouse and in the land?

b. What would be Bobs basis in the warehouse and in the land if the appraised value of the warehouse was $71,750, and the appraised value of the land was $183,000?

c.

In January, Prahbu purchased a new machine for use in an existing production line of his manufacturing business for $88,000. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $3,175 to install the machine, and after the machine is installed, he pays $1,750 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $4,200 to perform periodic quality control testing after the machine is placed in service.

How much will Prahbu be required to capitalize as the cost of the machine?