Ms. Drake sold a business that she had operated as a sole proprietorship for 18 years. On the date of sale, the business balance sheet showed the following assets: Accounts receivable Inventory Furniture and equipment: Cost Accumulated depreciation Leasehold improvements: Cost Accumulated amortization Tax Basis $ 44,000 185,600 Net cash flow 63,200 (50,560) 21,000 (4,200) Required: The purchaser paid a lump-sum price of $349,000 cash for the business. The sales contract stipulates that the FMV of the business inventory is $190,800, and the FMV of the remaining balance sheet assets equals adjusted tax basis. Assuming that Ms. Drake's marginal tax rate on ordinary income is 35 percent and her rate on capital gain is 15 percent, compute the net cash flow from the sale of her business.

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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B10.

 

Ms. Drake sold a business that she had operated as a sole proprietorship for 18 years. On the date of sale, the business balance sheet
showed the following assets:
Accounts receivable
Inventory
Furniture and equipment:
Cost
Accumulated depreciation
Leasehold improvements:
Cost
Accumulated amortization
Tax Basis
$ 44,000
185,600
Net cash flow
63,200
(50,560)
21,000
(4,200)
Required:
The purchaser paid a lump-sum price of $349,000 cash for the business. The sales contract stipulates that the FMV of the business
inventory is $190,800, and the FMV of the remaining balance sheet assets equals adjusted tax basis. Assuming that Ms. Drake's
marginal tax rate on ordinary income is 35 percent and her rate on capital gain is 15 percent, compute the net cash flow from the sale
of her business.
Transcribed Image Text:Ms. Drake sold a business that she had operated as a sole proprietorship for 18 years. On the date of sale, the business balance sheet showed the following assets: Accounts receivable Inventory Furniture and equipment: Cost Accumulated depreciation Leasehold improvements: Cost Accumulated amortization Tax Basis $ 44,000 185,600 Net cash flow 63,200 (50,560) 21,000 (4,200) Required: The purchaser paid a lump-sum price of $349,000 cash for the business. The sales contract stipulates that the FMV of the business inventory is $190,800, and the FMV of the remaining balance sheet assets equals adjusted tax basis. Assuming that Ms. Drake's marginal tax rate on ordinary income is 35 percent and her rate on capital gain is 15 percent, compute the net cash flow from the sale of her business.
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