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Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accounting balance sheet. The relevant information is summarized as follows: Note: Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign. Cash Receivables Building Land Total Payables FMV $ 18,000 26,000 105,000 229,000 $ 378,000 Adjusted Tax Basis $ 18,000 26,000 52,500 98,000 Appreciation $ 194,500 52,500 131,000 $ 183,500 $ 29,000 124,000 $ 153,000 Mortgage Total $ 29,000 124,000 $ 153,000 The mortgage is attached to the building and land. Ernesto was asking for $549,000 for the company. His tax basis in the BLI stock was $180,000. Included in the sales price was an unrecognized customer list valued at $180,000. The unallocated portion of the purchase price ($144,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $549,000. b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? Gain or loss recognized

Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accounting balance sheet. The relevant information is summarized as follows: Note: Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign. Cash Receivables Building Land Total Payables FMV $ 18,000 26,000 105,000 229,000 $ 378,000 Adjusted Tax Basis $ 18,000 26,000 52,500 98,000 Appreciation $ 194,500 52,500 131,000 $ 183,500 $ 29,000 124,000 $ 153,000 Mortgage Total $ 29,000 124,000 $ 153,000 The mortgage is attached to the building and land. Ernesto was asking for $549,000 for the company. His tax basis in the BLI stock was $180,000. Included in the sales price was an unrecognized customer list valued at $180,000. The unallocated portion of the purchase price ($144,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $549,000. b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? Gain or loss recognized

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accounting balance sheet. The relevant information is summarized as follows: Note: Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign. Cash Receivables Building Land Total Payables FMV $ 18,000 26,000 105,000 229,000 $ 378,000 Adjusted Tax Basis $ 18,000 26,000 52,500 98,000 Appreciation $ 194,500 52,500 131,000 $ 183,500 $ 29,000 124,000 $ 153,000 Mortgage Total $ 29,000 124,000 $ 153,000 The mortgage is attached to the building and land. Ernesto was asking for $549,000 for the company. His tax basis in the BLI stock was $180,000. Included in the sales price was an unrecognized customer list valued at $180,000. The unallocated portion of the purchase price ($144,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $549,000.
Transcribed Image Text:Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accounting balance sheet. The relevant information is summarized as follows: Note: Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign. Cash Receivables Building Land Total Payables FMV $ 18,000 26,000 105,000 229,000 $ 378,000 Adjusted Tax Basis $ 18,000 26,000 52,500 98,000 Appreciation $ 194,500 52,500 131,000 $ 183,500 $ 29,000 124,000 $ 153,000 Mortgage Total $ 29,000 124,000 $ 153,000 The mortgage is attached to the building and land. Ernesto was asking for $549,000 for the company. His tax basis in the BLI stock was $180,000. Included in the sales price was an unrecognized customer list valued at $180,000. The unallocated portion of the purchase price ($144,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $549,000.
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? Gain or loss recognized
Transcribed Image Text:b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? Gain or loss recognized
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