Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (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: Cash Receivables Building Land Total Payables Mortgage Total Adjusted Basis FMV $ 14,000 $ 14,000 21,000 21,000 94,000 47,000 204,000 74,000 $333,000 $156,000 $ 25,000 108,000 $133,000 $ 25,000 108,000 $133,000 Appreciation 47,000 130,000 $177,000 The mortgage is attached to the building and land. Ernesto was asking for $470,000 for the company. His tax basis in the BLI stock was $150,000. Included in the sales pa was an unrecognized customer list valued at $150,000. The unallocated portion of the purchase price ($120,000) will t recorded as goodwill. (Leave no answer blank. Enter zero if applicable.) Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $470,000.
Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (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: Cash Receivables Building Land Total Payables Mortgage Total Adjusted Basis FMV $ 14,000 $ 14,000 21,000 21,000 94,000 47,000 204,000 74,000 $333,000 $156,000 $ 25,000 108,000 $133,000 $ 25,000 108,000 $133,000 Appreciation 47,000 130,000 $177,000 The mortgage is attached to the building and land. Ernesto was asking for $470,000 for the company. His tax basis in the BLI stock was $150,000. Included in the sales pa was an unrecognized customer list valued at $150,000. The unallocated portion of the purchase price ($120,000) will t recorded as goodwill. (Leave no answer blank. Enter zero if applicable.) Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $470,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (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:
Cash
Receivables
Building
Land
Total
Payables
Mortgage*
Total
FMV
$ 14,000
21,000
94,000
204,000
$333,000
$ 25,000 $ 25,000
108,000
108,000
$133,000
$133,000
Adjusted
Basis
$ 14,000
Gain or loss recognized
Corporate-level tax
21,000
47,000
74,000
$156,000
Show Transcribed Text
The mortgage is attached to the building and land.
Ernesto was asking for $470,000 for the company. His tax basis in the BLI stock was $150,000. Included in the sales price
was an unrecognized customer list valued at $150,000. The unallocated portion of the purchase price ($120,000) will be
recorded as goodwill. (Leave no answer blank. Enter zero if applicable.)
Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $470,000.
Appreciation
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 as a result of the transaction, assuming a tax rate of 34 percent?
Gain or loss recognized
47,000
130,000
$177,000
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb209d90c-1c14-40b1-bcc0-74d529362312%2F73d2fc62-4e9f-422d-b654-43d19b8a4409%2F3zvj9z8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (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:
Cash
Receivables
Building
Land
Total
Payables
Mortgage*
Total
FMV
$ 14,000
21,000
94,000
204,000
$333,000
$ 25,000 $ 25,000
108,000
108,000
$133,000
$133,000
Adjusted
Basis
$ 14,000
Gain or loss recognized
Corporate-level tax
21,000
47,000
74,000
$156,000
Show Transcribed Text
The mortgage is attached to the building and land.
Ernesto was asking for $470,000 for the company. His tax basis in the BLI stock was $150,000. Included in the sales price
was an unrecognized customer list valued at $150,000. The unallocated portion of the purchase price ($120,000) will be
recorded as goodwill. (Leave no answer blank. Enter zero if applicable.)
Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $470,000.
Appreciation
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 as a result of the transaction, assuming a tax rate of 34 percent?
Gain or loss recognized
47,000
130,000
$177,000
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian?
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