And so now in step two, we'll allocate the remaining decrease

to property with unrealized appreciation to the extent

of the unrealized appreciation.

So, we'll allocate a portion to A because it has unrealized depreciation,

its fair market value is $7,000 and its adjusted basis is 10,

and it's the only asset that has depreciated in value.

So, it's the only one that we need to consider in step two.

So, we allocate $3,000 dollars to this asset.

So, we have a remaining decrease now of 6,000,

and then just to track it,

we have an interim basis sort of a subtotal at this step of A,

property A of $7,000,

which was the 10 we initially assigned to it less

the $3,000 decrease we just assign in this step, step two.

Now, we go to step three,

where we're going to allocate the remaining decrease to property in relation

to their adjusted basis.

So, allocate a portion to property item A,

and we have $6,000 of decrease left to allocate,

and we'll do this on the basis of adjusted basis.

And so the interim basis of property item A is seven thousand dollars,

which we computed in the prior step,

and we'll do that over the sum of the 7,000 plus the basis of B, which is 10.

And so we get 2470 being allocated to A,

and will allocate the remaining amount to B,

which would be 3530,

but to be formal,

we can write it out to say it would be the $6,000 times 10,000

over 7,000 plus 10,000 in that proportion.

So, we can take 6,000 minus these two amounts,

we see that we've fully allocated all of the remaining decrease.

And so we can summarize our answer by looking at

the final basis amounts for each of the assets.

Cash would be $187,000,

property item A would be 4,350,

which begins with our interim basis in step two

less the 2470 adjustment that we made in step three,

and property item B would be 6470.

Be the $10,000 that we initially assigned less the adjustment from step three of 3,530.

And then finally, the inventory of 70,000.

And as before, we have no gain or loss to recognize on the transaction.