12 Part 2 of 5 5.66 points eBook: Print References 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: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Cash Receivables Building Land Total Adjusted Tax Basis. $ 10,000 15,000 Appreciation PMV $ 10,000 15,000 100,000 50,000 225,000 75,000 $350,000 $150,000 50,000 150,000 $ 200,000 $ 18,000 112,000 $130,000 Payables: Mortgage Total $ 10,000 112,000 $ 130,000 The mortgage is attached to the building and land. Ernesto was asking for $400,000 for the company. His tax basis in the BLI stock was $100,000. Included in the sales price was an unrecognized customer list valued at $100,000. The unallocated portion of the purchase price ($80,000) will be recorded as goodwill. Rather than purchase BLI directly, Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire the business from Ernesto in a tax-deferred Type A merger, Amy and Brian would like Ernesto to continue to run BLI, which he agreed to do if he could obtain an equity interest in STS. As part of the agreement, Amy and Brian propose to pay Ernesto $200,000 plus voting stock in STS worth $200,000. Ernesto will become a 10 percent shareholder in STS after the transaction. Mc b. What amount of gain or loss does BLI recognize if the transaction is structured as a Type A merger? What amount of corporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent? Gain or loss recognized Corporate-level tax of 5 bok. nt ences 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: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Cash Receivables Building Land Total Payables. Mortgage Total FMV $ 10,000 15,000 100,000 225,000 $ 350,000 $ 18,000 112,000 $ 130,000 Adjusted Tax Basis $ 10,000 15,000 50,000 75,000 $ 150,000 $ 18,000 112,000 $ 130,000 Appreciation 50,000 150,000 The mortgage is attached to the building and land. $ 200,000 Ernesto was asking for $400,000 for the company. His tax basis in the BLI stock was $100,000. Included in the sales price was an unrecognized customer list valued at $100,000. The unallocated portion of the purchase price ($80,000) will be recorded as goodwill. Rather than purchase BLI directly, Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire the business from Ernesto in a tax-deferred Type A merger. Amy and Brian would like Ernesto to continue to run BLI, which he agreed to do if he could obtain an equity interest in STS. As part of the agreement, Amy and Brian propose to pay Ernesto $200,000 plus voting stock in STS worth $200,000. Ernesto will become a 10 percent shareholder in STS after the transaction. c. What amount of gain or loss does Ernesto recognize if the transaction is structured as a Type A merger? Gain or loss recognized 14 Part 4 of 5 The following information applies to the years played 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: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) FMV $ 10,000 15,000 100,000 225,000 Adjusted Tax Basis $ 10,000 Appreciation 15,000 50,000 75,000 $350,000 $ 150,000 50,000 150,000 $ 200,000 $ 18,000 112,000 $ 18,000 112,000 6.66 points eBook Print References Cash Receivables. Building Land Total Payables Mortgage Total $130,000 $130,000 The mortgage is attached to the building and land. Ernesto was asking for $400,000 for the company. His tax basis in the BLI stock was $100,000. Included in the sales price was an unrecognized customer list valued at $100,000. The unallocated portion of the purchase price ($80,000) will be recorded as goodwill. Rather than purchase BLI directly, Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire the business from Ernesto in a tax-deferred Type A merger, Amy and Brian would like Ernesto to continue to run BLI, which he agreed to do if he could obtain an equity interest in STS. As part of the agreement, Amy and Brian propose to pay Ernesto $200,000 plus voting stock in STS worth $200,000. Ernesto will become a 10 percent shareholder in STS after the transaction. d. What is Ernesto's tax basis in the STS stock he receives in the exchange? Tax basis