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: Appreciation Cash Receivables Building Land FMV $ 13,000 18,000 80,000 177,000 $288,000 Adjusted Basis $ 13,000 18,000 40,000 70,000 $141,000 40,000 107,000 $147,000 Total Payables Mortgage* Total $ 21,000 92,000 $113,000 $ 21,000 92,000 $113,000 * The mortgage is attached to the building and land. Ernesto was asking for $373,000 for the company. His tax basis in the BLI stock was $110,000. Included in the sale price was an unrecognized customer list valued at $110,000. The unallocated portion of the purchase price ($88,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $373,000. a. What amount of gain or loss does BLI recognize if the transaction is structured as a stock sale to Amy and Brian? What amount of corporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Answer is complete but not entirely correct. $ Gain or loss recognized Corporate-level tax 345,000 X 79,450 X $ b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Answer is complete but not entirely correct. Gain or loss recognized $ 190,550 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: Appreciation Cash Receivables Building Land FMV $ 13,000 18,000 80,000 177,000 $288,000 Adjusted Basis $ 13,000 18,000 40,000 70,000 $141,000 40,000 107,000 $147,000 Total Payables Mortgage* Total $ 21,000 92,000 $113,000 $ 21,000 92,000 $113,000 * The mortgage is attached to the building and land. Ernesto was asking for $373,000 for the company. His tax basis in the BLI stock was $110,000. Included in the sale price was an unrecognized customer list valued at $110,000. The unallocated portion of the purchase price ($88,000) will be recorded as goodwill. Assume Ernesto agrees to sell his stock in BLI to Amy and Brian for $373,000. a. What amount of gain or loss does BLI recognize if the transaction is structured as a stock sale to Amy and Brian? What amount of corporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Answer is complete but not entirely correct. $ Gain or loss recognized Corporate-level tax 345,000 X 79,450 X $ b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Answer is complete but not entirely correct. Gain or loss recognized $ 190,550
