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. a. What amount of gain or loss does BLI recognize if the transaction is structured as a stock sale to Amy and Brian? What amount of corporate-level tax does BLI pay because of the transaction? Gain or loss recognized Corporate-level tax
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. a. What amount of gain or loss does BLI recognize if the transaction is structured as a stock sale to Amy and Brian? What amount of corporate-level tax does BLI pay because of the transaction? Gain or loss recognized Corporate-level tax
Chapter14: Choice Of Business Entity—operations And Distributions
Section: Chapter Questions
Problem 77EDC
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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.
Transcribed Image Text:a. What amount of gain or loss does BLI recognize if the transaction is structured as a stock sale to Amy and Brian? What amount of
corporate-level tax does BLI pay because of the transaction?
Gain or loss recognized
Corporate-level tax
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