55. LO.3, 4 Jay’s sole proprietorship has the following assets:

Basis Fair Market Value Cash $ 10,000 $ 10,000 Accounts receivable 18,000 18,000 Inventory 25,000 30,000 Patent 22,000 40,000 Land 50,000 75,000

$125,000 $173,000 The building in which Jay’s business is located is leased. The lease expires at the end of the year.

Jay is 70 years old and would like to retire. He expects to be in the 35% tax bracket.

Jay is negotiating the sale of the business with Lois, a key employee. They have agreed on the fair market value of the assets, as indicated previously, and agree that the total purchase price should be about $200,000.

a. Advise Jay regarding how the sale should be structured.

b. Advise Lois regarding how the purchase should be structured.

c. What might they do to achieve an acceptable compromise?