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 Mortgage* Total FMV $ 19,000 24,000 71,000 155,000 $ 269,000 $ 27,000 89,000 $ 116,000 Adjusted Tax Basis $ 19,000 24,000 35,500 50,000 $ 128,500 $ 27,000 89,000 $ 116,000 Appreciation 35,500 105,000 $ 140,500 The mortgage is attached to the building and land. Ernesto was asking for $297,000 for the company. His tax basis in the BLI stock was $80,000. Included in the sales price was an unrecognized customer list valued at $80,000. The unallocated portion of the purchase price ($64,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $297,000. Problem 19-58 Part a (Algo) a. What amount of gain or loss does BLI recognizelf 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?
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 Mortgage* Total FMV $ 19,000 24,000 71,000 155,000 $ 269,000 $ 27,000 89,000 $ 116,000 Adjusted Tax Basis $ 19,000 24,000 35,500 50,000 $ 128,500 $ 27,000 89,000 $ 116,000 Appreciation 35,500 105,000 $ 140,500 The mortgage is attached to the building and land. Ernesto was asking for $297,000 for the company. His tax basis in the BLI stock was $80,000. Included in the sales price was an unrecognized customer list valued at $80,000. The unallocated portion of the purchase price ($64,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $297,000. Problem 19-58 Part a (Algo) a. What amount of gain or loss does BLI recognizelf 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
Mortgage*
Total
Adjusted Tax
Basis
$ 19,000
24,000
35,500
50,000
FMV
$ 19,000
24,000
71,000
155,000
$ 269,000 $ 128,500
$ 27,000
89,000
$ 116,000
Gain or loss recognized
Corporate-level tax
$ 27,000
89,000
$ 116,000
Appreciation
35,500
105,000
$ 140,500
The mortgage is attached to the building and land.
Ernesto was asking for $297,000 for the company. His tax basis in the BLI stock was $80,000. Included in the sales price
was an unrecognized customer list valued at $80,000. The unallocated portion of the purchase price ($64,000) will be
recorded as goodwill.
Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $297,000.
Problem 19-58 Part a (Algo)
a. What amount of gain or loss does BLI recognizelf 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?
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