Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. amy and brian were investigating the acquisition o

Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated...

90.2K

Verified Solution

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!
Become a Member

Other questions asked by students