Problem 19-58 (LO 19-4) (Algo) [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 11,000 90,000 192,000 $ 301,000 $ 15,000 100,000 $ 115,000 Adjusted Tax Basis $ 8,000 11,000 45,000 102,000 $ 166,000 $ 15,000 100,000 $ 115,000 Appreciation 45,000 90,000 $ 135,000 * The mortgage is attached to the building and land. Ernesto was asking for $420,000 for the company. His tax basis in the BLI stock was $130,000. Included in the sales price was an unrecognized customer list valued at $130,000. The unallocated portion of the purchase price ($104,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $420,000.
Problem 19-58 (LO 19-4) (Algo) [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 11,000 90,000 192,000 $ 301,000 $ 15,000 100,000 $ 115,000 Adjusted Tax Basis $ 8,000 11,000 45,000 102,000 $ 166,000 $ 15,000 100,000 $ 115,000 Appreciation 45,000 90,000 $ 135,000 * The mortgage is attached to the building and land. Ernesto was asking for $420,000 for the company. His tax basis in the BLI stock was $130,000. Included in the sales price was an unrecognized customer list valued at $130,000. The unallocated portion of the purchase price ($104,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $420,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Tt.
a. What amount of gain or loss does BLI recognize if 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?
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian?
![Problem 19-58 (LO 19-4) (Algo)
[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
11,000
90,000
192,000
$ 301,000
$ 15,000
100,000
$ 115,000
Adjusted Tax
Basis
$ 8,000
11,000
45,000
102,000
$ 166,000
$ 15,000
100,000
$ 115,000
Appreciation
45,000
90,000
$ 135,000
* The mortgage is attached to the building and land.
Ernesto was asking for $420,000 for the company. His tax basis in the BLI stock was $130,000. Included in the sales price
was an unrecognized customer list valued at $130,000. The unallocated portion of the purchase price ($104,000) will be
recorded as goodwill.
Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $420,000.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd3b7da89-480b-4b70-a8d0-d00beacb0479%2F6cad4160-15e0-48e2-8598-44e07c970b8d%2Fqz41do_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 19-58 (LO 19-4) (Algo)
[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
11,000
90,000
192,000
$ 301,000
$ 15,000
100,000
$ 115,000
Adjusted Tax
Basis
$ 8,000
11,000
45,000
102,000
$ 166,000
$ 15,000
100,000
$ 115,000
Appreciation
45,000
90,000
$ 135,000
* The mortgage is attached to the building and land.
Ernesto was asking for $420,000 for the company. His tax basis in the BLI stock was $130,000. Included in the sales price
was an unrecognized customer list valued at $130,000. The unallocated portion of the purchase price ($104,000) will be
recorded as goodwill.
Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $420,000.
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