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: Cash Receivables Building FMV $ 25,000 22,000 Land Total 131,000 264,000 Adjusted Tax Basis $ 25,000 22,000 65,500 88,000 Appreciation 65,500 176,000 $ 241,500 * Payables Mortgage Total $ 442,000 $ 200,500 $ 20,500 137,250 $ 20,500 137,250 $ 157,750 $ 157,750 The mortgage is attached to the building and land. Ernesto was asking for $552,750 for the company. His tax basis in the BLI stock was $181,000. Included in the sales price was an unrecognized customer list valued at $186,000. The unallocated portion of the purchase price ($82,500) will be recorded as goodwill. Note: Negative amounts should be indicated by a minus sign. b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale to Amy and Brian, and BLI distributes the after-tax proceeds [computed in part (a)] to Ernesto in liquidation of his stock? Gain or loss recognized
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: Cash Receivables Building FMV $ 25,000 22,000 Land Total 131,000 264,000 Adjusted Tax Basis $ 25,000 22,000 65,500 88,000 Appreciation 65,500 176,000 $ 241,500 * Payables Mortgage Total $ 442,000 $ 200,500 $ 20,500 137,250 $ 20,500 137,250 $ 157,750 $ 157,750 The mortgage is attached to the building and land. Ernesto was asking for $552,750 for the company. His tax basis in the BLI stock was $181,000. Included in the sales price was an unrecognized customer list valued at $186,000. The unallocated portion of the purchase price ($82,500) will be recorded as goodwill. Note: Negative amounts should be indicated by a minus sign. b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale to Amy and Brian, and BLI distributes the after-tax proceeds [computed in part (a)] to Ernesto in liquidation of his stock? Gain or loss recognized
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter13: Corporations: Earning & Profits And Distributions
Section: Chapter Questions
Problem 1RP
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Question
I need assistance with getting the correct answer to the recognized gain or loss.
![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:
Cash
Receivables
Building
FMV
$ 25,000
22,000
Land
Total
131,000
264,000
Adjusted Tax
Basis
$ 25,000
22,000
65,500
88,000
Appreciation
65,500
176,000
$ 241,500
*
Payables
Mortgage
Total
$ 442,000
$ 200,500
$ 20,500
137,250
$ 20,500
137,250
$ 157,750
$ 157,750
The mortgage is attached to the building and land.
Ernesto was asking for $552,750 for the company. His tax basis in the BLI stock was $181,000. Included in the sales price
was an unrecognized customer list valued at $186,000. The unallocated portion of the purchase price ($82,500) will be
recorded as goodwill.
Note: Negative amounts should be indicated by a minus sign.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5328c12f-e34a-4a1d-b440-4bff5d546c4c%2F563d991f-25a7-4a79-ac09-62688ff70970%2Fg4oq62s_processed.png&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:
Cash
Receivables
Building
FMV
$ 25,000
22,000
Land
Total
131,000
264,000
Adjusted Tax
Basis
$ 25,000
22,000
65,500
88,000
Appreciation
65,500
176,000
$ 241,500
*
Payables
Mortgage
Total
$ 442,000
$ 200,500
$ 20,500
137,250
$ 20,500
137,250
$ 157,750
$ 157,750
The mortgage is attached to the building and land.
Ernesto was asking for $552,750 for the company. His tax basis in the BLI stock was $181,000. Included in the sales price
was an unrecognized customer list valued at $186,000. The unallocated portion of the purchase price ($82,500) will be
recorded as goodwill.
Note: Negative amounts should be indicated by a minus sign.
![b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale to Amy and Brian, and BLI
distributes the after-tax proceeds [computed in part (a)] to Ernesto in liquidation of his stock?
Gain or loss recognized](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5328c12f-e34a-4a1d-b440-4bff5d546c4c%2F563d991f-25a7-4a79-ac09-62688ff70970%2Ff7778c9_processed.png&w=3840&q=75)
Transcribed Image Text:b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale to Amy and Brian, and BLI
distributes the after-tax proceeds [computed in part (a)] to Ernesto in liquidation of his stock?
Gain or loss recognized
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