Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (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 Basis Appreciation Cash $ 14,500 $ 14,500 Receivables 18,800 18,800 Building 102,500 51,250 51,250 Land 260,250 86,750 173,500 Total $ 396,050 $ 171,300 $ 224,750 Payables $ 19,100 $ 19,100 Mortgage* 159,000 159,000
Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (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 Basis |
|
Appreciation |
|||
|
Cash |
$ |
14,500 |
|
$ |
14,500 |
|
|
|
|
Receivables |
|
18,800 |
|
|
18,800 |
|
|
|
|
Building |
|
102,500 |
|
|
51,250 |
|
|
51,250 |
|
Land |
|
260,250 |
|
|
86,750 |
|
|
173,500 |
|
Total |
$ |
396,050 |
|
$ |
171,300 |
|
$ |
224,750 |
|
|
|
|
|
|
|
|
|
|
|
Payables |
$ |
19,100 |
|
$ |
19,100 |
|
|
|
|
Mortgage* |
|
159,000 |
|
|
159,000 |
|
|
|
|
Total |
$ |
178,100 |
|
$ |
178,100 |
|
|
|
|
|
* The mortgage is attached to the building and land.
Ernesto was asking for $445,700 for the company. His tax basis in the BLI stock was $142,000. Included in the sales price was an unrecognized customer list valued at $147,000. The unallocated portion of the purchase price ($80,750) will be recorded as
- What amount of gain or loss does BLI recognize if the transaction is structured as a direct asset sale to Amy and Brian? What amount of corporate-level tax does BLI pay as a result of the transaction?
Cash paid 445700
+ Liabilities assumed 178100
= Amount realized 623800
Adjusted basis I said 171300, but web text says that’s wrong.This is the ONLY part I got wrong
Gain or loss recognized 795100
Tax rate 21%
Tax 166971
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