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 companys tax accounting balance sheet. The relevant information is summarized as follows:

	FMV	Adjusted Basis	Appreciation
Cash	31,500	31,500
Receivables	17,000	17,000
Building	113,500	56,750	56,750
Land	273,000	91,000	182,000
TOTAL	435,000	196,250	238,750
Payables	22,300	22,300
Mortgage*	182,250	182,250
TOTAL	204,550	204,550

* The mortgage is attached to the building and land.

Ernesto was asking for $450,200 for the company. His tax basis in the BLI stock was $120,000. Included in the sales price was an unrecognized customer list valued at $138,000. The unallocated portion of the purchase price ($81,750) will be recorded as goodwill.

a. 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, assuming a tax rate of 34 percent?

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 question a) to Ernesto in liquidation of his stock?