b. What amount of gain or loss does BLI recognize if the transaction is structured as a Type A merger? What amount of corporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent? Gain or loss recognized Corporate-level tax 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 FMV 15,000 19,000 Adjusted Tax Basis $ 15,000 19,000 Appreciation Total Payables Mortgage Total 111,000 237,000 $ 382,000 $ 22,000 128,000 $ 150,000 55,500 87,000 $ 176,500 $ 22,000 128,000 $ 150,000 *The mortgage is attached to the building and land. 55,500 150,000 $ 205,500 Ernesto was asking for $430,000 for the company. His tax basis in the BLI stock was $170,000. Included in the sales price was an unrecognized customer list valued at $170,000. The unallocated portion of the purchase price ($28,000) 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 $215,000 plus voting stock in STS worth $215,000. Ernesto will become a 10 percent shareholder in STS after the transaction.
b. What amount of gain or loss does BLI recognize if the transaction is structured as a Type A merger? What amount of corporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent? Gain or loss recognized Corporate-level tax 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 FMV 15,000 19,000 Adjusted Tax Basis $ 15,000 19,000 Appreciation Total Payables Mortgage Total 111,000 237,000 $ 382,000 $ 22,000 128,000 $ 150,000 55,500 87,000 $ 176,500 $ 22,000 128,000 $ 150,000 *The mortgage is attached to the building and land. 55,500 150,000 $ 205,500 Ernesto was asking for $430,000 for the company. His tax basis in the BLI stock was $170,000. Included in the sales price was an unrecognized customer list valued at $170,000. The unallocated portion of the purchase price ($28,000) 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 $215,000 plus voting stock in STS worth $215,000. Ernesto will become a 10 percent shareholder in STS after the transaction.
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter12: Corporations: Organization, Capital Structure, And Operating Rules
Section: Chapter Questions
Problem 12P
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Question
How do I find the recognized gain or loss and the corporate-level tax?
Transcribed Image Text:b. What amount of gain or loss does BLI recognize if the transaction is structured as a Type A merger? What amount of corporate-level
tax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent?
Gain or loss recognized
Corporate-level tax
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
FMV
15,000
19,000
Adjusted Tax
Basis
$ 15,000
19,000
Appreciation
Total
Payables
Mortgage
Total
111,000
237,000
$ 382,000
$ 22,000
128,000
$ 150,000
55,500
87,000
$ 176,500
$ 22,000
128,000
$ 150,000
*The mortgage is attached to the building and land.
55,500
150,000
$ 205,500
Ernesto was asking for $430,000 for the company. His tax basis in the BLI stock was $170,000. Included in the sales price
was an unrecognized customer list valued at $170,000. The unallocated portion of the purchase price ($28,000) 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
$215,000 plus voting stock in STS worth $215,000. Ernesto will become a 10 percent shareholder in STS after the
transaction.
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