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.) Cash Receivables Building Land FMV 19,000 24,000 71,000 155,000 aco.000 Adjusted Tax Basis $ 19,000 24,000 35,500 50,000 120 500 Appreciation 35,500 105,000 140 500
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.) Cash Receivables Building Land FMV 19,000 24,000 71,000 155,000 aco.000 Adjusted Tax Basis $ 19,000 24,000 35,500 50,000 120 500 Appreciation 35,500 105,000 140 500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
What amount of gain or loss does Ernesto recognize if the transaction is structured as a Type A merger?
![[The following information applies to the questions displayed below.]
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.)
Cash
Receivables
Building
Land
Total
FMV
19,000
24,000
71,000
155,000
$ 269,000
Payables
Mortgage*
Adjusted Tax
Basis
$ 19,000
24,000
35,500
50,000
$ 128,500
$ 27,000
89,000
$ 116,000
Total
* The mortgage is attached to the building and land.
$ 27,000
89,000
$ 116,000
Appreciation
35,500
105,000
$ 140,500
Ernesto was asking for $420,000 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 ($87,000) will be
recorded as goodwill.
Rather than purchase BLI directly, Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire the
business from Ernesto in a tax-deferred Type A merger. Amy and Brian would like Ernesto to continue to run BLI, which he
agreed to do if he could obtain an equity interest in STS. As part of the agreement, Amy and Brian propose to pay Ernesto
$210,000 plus voting stock in STS worth $210,000. Ernesto will become a 10 percent shareholder in STS after the
transaction.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fccc4018d-0ec5-4368-8f5c-2f09ee32d20a%2F41831cee-b047-4f6d-a239-a5b8dcd9be86%2Fwy2ioq_processed.png&w=3840&q=75)
Transcribed Image Text:[The following information applies to the questions displayed below.]
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.)
Cash
Receivables
Building
Land
Total
FMV
19,000
24,000
71,000
155,000
$ 269,000
Payables
Mortgage*
Adjusted Tax
Basis
$ 19,000
24,000
35,500
50,000
$ 128,500
$ 27,000
89,000
$ 116,000
Total
* The mortgage is attached to the building and land.
$ 27,000
89,000
$ 116,000
Appreciation
35,500
105,000
$ 140,500
Ernesto was asking for $420,000 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 ($87,000) will be
recorded as goodwill.
Rather than purchase BLI directly, Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire the
business from Ernesto in a tax-deferred Type A merger. Amy and Brian would like Ernesto to continue to run BLI, which he
agreed to do if he could obtain an equity interest in STS. As part of the agreement, Amy and Brian propose to pay Ernesto
$210,000 plus voting stock in STS worth $210,000. Ernesto will become a 10 percent shareholder in STS after the
transaction.
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