Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (BLI). As part of theirdiscussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accountingbalance sheet. The relevant information is summarized as follows:CashReceivablesBuildingLandTotalPayablesMortgage*TotalFMV$ 14,00021,00094,000204,000$333,000$ 25,000 $ 25,000108,000108,000$133,000$133,000AdjustedBasis$ 14,000Gain or loss recognizedCorporate-level tax21,00047,00074,000$156,000Show Transcribed TextThe 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 pricewas an unrecognized customer list valued at $150,000. The unallocated portion of the purchase price ($120,000) will berecorded 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.Appreciationa. What amount of gain or loss does BLI recognize if the transaction is structured as a stock sale to Amy and Brian? What amount ofcorporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 34 percent?Gain or loss recognized47,000130,000$177,000b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian?

Recognized gain is calculated by all the payments and the received amount is considered to know…

Answered: Amy and Brian were investigating the…

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: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) FMV Adjusted Tax Basis Appreciation Cash $ 6,000 $ 6,000 Receivables 9,000 9,000 Building 114,000 57,000 57,000 Land 248,000 78,000 170,000 Total $ 377,000 $ 150,000 $ 227,000 Payables $ 11,000 $ 11,000 Mortgage* 134,000 134,000 Total $ 145,000 $ 145,000 * The mortgage is attached to the building and land. Ernesto was asking for $574,000 for the company. His tax basis in the BLI stock was $190,000. Included in the sales price was an unrecognized customer list valued at $190,000. The unallocated portion of the purchase price…
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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: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Ad justed Tax Basis $ 6,000 9,000 56,500 139,000 $ 210,500 PMV Appreciation Cash Receivables Building $ 6,000 9,000 113,000 239,000 ६ 367,000 56,500 100,000 $ 156,500 Land Total Payables Mortgage $ 12,000 132,000 $ 144,000 $ 12,000 132,000 $144,000 Total * The mortgage is attached to the building and land. Ernesto was asking for $493,000 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. Assume Ernesto…

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