Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated...
90.2K
Verified Solution
Link Copied!
Question
Accounting
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:
FMV
Adjusted Tax Basis
Appreciation
Cash
$ 28,500
$ 28,500
Receivables
20,400
20,400
Building
127,000
63,500
63,500
Land
233,250
77,750
155,500
Total
$ 409,150
$ 190,150
$ 219,000
Payables
$ 24,200
$ 24,200
Mortgage*
174,800
174,800
Total
$ 199,000
$ 199,000
* The mortgage is attached to the building and land.
Ernesto was asking for $496,950 for the company. His tax basis in the BLI stock was $146,000. Included in the sales price was an unrecognized customer list valued at $189,000. The unallocated portion of the purchase price ($97,800) will be recorded as goodwill.
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?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
