Question

Paper Corporation adopts a plan of reorganization and exchanges 1,000 shares of its voting stock and $50,000 in cash for Chase Corporation's assets having a $200,000 adjusted basis and a $275,000 FMV. Chase Corporation is subsequently liquidated. What is Paper Corporation's basis in the assets acquired in the exchange?

Answer 1

Answer:

$200,000

Explanation:

According to the historical cost principle, the fixed assets should be recorded at the purchase cost or book value in the books of accounts, not the fair market value.

According to the given scenario, the Asset value should be recorded at the adjusted basis i.e $200,000 not the $275,000 i.e fair market value

The number of shares and the cash balance should be ignored.