Emily and Frida are negotiating with George to purchase the business that he operates as Pelican, Inc. The assets of Pelican, a C corporation, include:AssetBasisFMV Cash$20,000$20,000 Accounts receivable50,00050,000 Inventory100,000110,000 Furniture and fixtures*150,000170,000 Building**200,000250,000 Land40,000150,000 * The potential depreciation recapture under § 1245 is $45,000.** The straight-line method was used to depreciate the building. The balance in the accumulated depreciation account is $340,000. George's basis for the stock of Pelican is $560,000. George is in the 32% tax bracket.b. Assume that Emily and Frida purchase the assets from Pelican and that the purchase price is $908,000.Emily and Firda's basis in the assets in $750,000 and they will have goodwill with a basis on $158,000. Pelican's total recognized gain is $348,000, of which __________ is a capital gain and ___________ is ordinary income.

To determine the amount of recognized gain that is capital gain and ordinary income, we need to…

Answered: Emily and Frida are negotiating with…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Emily and Frida are negotiating with George to purchase the business that he operates as Pelican, Inc. The assets of Pelican, a C corporation, include:

Asset	Basis	FMV
Cash	$20,000	$20,000
Accounts receivable	50,000	50,000
Inventory	100,000	110,000
Furniture and fixtures^*	150,000	170,000
Building^**	200,000	250,000
Land	40,000	150,000
^* The potential depreciation recapture under § 1245 is $45,000. ^** The straight-line method was used to depreciate the building. The balance in the accumulated depreciation account is $340,000.

George's basis for the stock of Pelican is $560,000. George is in the 32% tax bracket.

b. Assume that Emily and Frida purchase the assets from Pelican and that the purchase price is $908,000.

Emily and Firda's basis in the assets in $750,000 and they will have goodwill with a basis on $158,000. Pelican's total recognized gain is $348,000, of which __________ is a capital gain and ___________ is ordinary income.

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