b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? Gain or loss recognized
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? Gain or loss recognized
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Required information
[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
Payables
Mortgage*
Total
FMV
$ 8,000
16,000
100,000
215,000
$ 339,000
$ 20,000
111,000
$ 131,000
Gain or loss recognized
Adjusted Tax
Basis.
$ 8,000
16,000
50,000
115,000
$ 189,000
$ 20,000
111,000
$ 131,000
Appreciation
50,000
100,000
$ 150,000
*The mortgage is attached to the building and land.
Ernesto was asking for $460,000 for the company. His tax basis in the BLI stock was $140,000.
Included in the sales price was an unrecognized customer list valued at $140,000. The
unallocated portion of the purchase price ($112,000) will be recorded as goodwill.
Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $460,000.
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and
Brian?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fab4cf5f3-b267-4d80-a549-5b33c83452cc%2F20618cca-e990-446c-a65b-8bf0fa90263d%2Fcbfn4yq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required information
[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
Payables
Mortgage*
Total
FMV
$ 8,000
16,000
100,000
215,000
$ 339,000
$ 20,000
111,000
$ 131,000
Gain or loss recognized
Adjusted Tax
Basis.
$ 8,000
16,000
50,000
115,000
$ 189,000
$ 20,000
111,000
$ 131,000
Appreciation
50,000
100,000
$ 150,000
*The mortgage is attached to the building and land.
Ernesto was asking for $460,000 for the company. His tax basis in the BLI stock was $140,000.
Included in the sales price was an unrecognized customer list valued at $140,000. The
unallocated portion of the purchase price ($112,000) will be recorded as goodwill.
Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $460,000.
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and
Brian?
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