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: 24,200 Adjusted Tax Basis $ 24,000 Appreciation Cash FMV $ 24,000 Receivables 24,200 Building 112,000 56,000 56,000 Land 238,500 79,500 159,000 Total $ 398,700 $ 183,700 $ 215,000 Payables Mortgage* $ 25,600 128,300 $ 25,600 128,300 Total $ 153,900 $ 153,900 *The mortgage is attached to the building and land. Ernesto was asking for $504,100 for the company. His tax basis in the BLI stock was $144,000. Included in the sales price was an unrecognized customer list valued at $183,000. The unallocated portion of the purchase price ($76,300) will be recorded as goodwill. Note: Negative amounts should be indicated by a minus sign. a. What amount of gain or loss does BLI recognize if the transaction is structured as a direct asset sale to Amy and Brian? What amount of corporate-level tax does BLI pay because of the transaction? Answer is complete but not entirely correct. Cash paid $ 504,100 Liabilities assumed 153,900 Amount realized $ 658,000 Adjusted Basis 183,700 Gain or Loss Recognized $ 841,700 Tax Rate 21 % Tax $ 176,757
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: 24,200 Adjusted Tax Basis $ 24,000 Appreciation Cash FMV $ 24,000 Receivables 24,200 Building 112,000 56,000 56,000 Land 238,500 79,500 159,000 Total $ 398,700 $ 183,700 $ 215,000 Payables Mortgage* $ 25,600 128,300 $ 25,600 128,300 Total $ 153,900 $ 153,900 *The mortgage is attached to the building and land. Ernesto was asking for $504,100 for the company. His tax basis in the BLI stock was $144,000. Included in the sales price was an unrecognized customer list valued at $183,000. The unallocated portion of the purchase price ($76,300) will be recorded as goodwill. Note: Negative amounts should be indicated by a minus sign. a. What amount of gain or loss does BLI recognize if the transaction is structured as a direct asset sale to Amy and Brian? What amount of corporate-level tax does BLI pay because of the transaction? Answer is complete but not entirely correct. Cash paid $ 504,100 Liabilities assumed 153,900 Amount realized $ 658,000 Adjusted Basis 183,700 Gain or Loss Recognized $ 841,700 Tax Rate 21 % Tax $ 176,757
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:
24,200
Adjusted Tax
Basis
$ 24,000
Appreciation
Cash
FMV
$ 24,000
Receivables
24,200
Building
112,000
56,000
56,000
Land
238,500
79,500
159,000
Total
$ 398,700
$ 183,700
$ 215,000
Payables
Mortgage*
$ 25,600
128,300
$ 25,600
128,300
Total
$ 153,900
$ 153,900
*The mortgage is attached to the building and land.
Ernesto was asking for $504,100 for the company. His tax basis in the
BLI stock was $144,000. Included in the sales price was an
unrecognized customer list valued at $183,000. The unallocated
portion of the purchase price ($76,300) will be recorded as goodwill.
Note: Negative amounts should be indicated by a minus sign.
a. What amount of gain or loss does BLI recognize if the transaction is structured as a
direct asset sale to Amy and Brian? What amount of corporate-level tax does BLI pay
because of the transaction?
Answer is complete but not entirely correct.
Cash paid
$
504,100
Liabilities assumed
153,900
Amount realized
$ 658,000
Adjusted Basis
183,700
Gain or Loss Recognized
$
841,700
Tax Rate
21
%
Tax
$ 176,757
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