Problem 19-49 (LO 19-4) [The following information applies to the questions displayed below] 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: Adjusted Appreciation FMV Basis $ 14,000 $ 14,000 Cash Receivables 21,000 94,000 204, 21,000 47,000 74,000 47,000 130,000 Building Land $333,000 $156,000 $177,000 Total $ 25,000 $ 25,000 108,000 Payables Mortgage* 108,000 $133,000 $133,000 Total *The mortgage is attached to the building and land. Ernesto was asking for $412,000 for the company. His tax basis in the BLI stock was $160,000. Included in the sale price was an unrecognized customer list valued at $160,000. The unallocated portion of the purchase price ($52,000) 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 $206,000 plus voting stock in STS worth $206,000. Ernesto will become a 10 percent shareholder in STS after the transaction Problem 19-49 Part a a. Will the continuity of ownership interest (COI) requirements for a straight Type A merger be met? Yes ONo Problem 19-49 Part b 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? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Gain or loss recognized Corporate-level tax Problem 19-49 Part c c. What amount of gain or loss does Ernesto recognize if the transaction is structured as a Type A merger? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Gain or loss recognized Problem 19-49 Part d d. What is Ernesto's tax basis in the STS stock he receives in the exchange? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Tax basis Problem 19-49 (LO 19-4) [The following information applies to the questions displayed below] 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: Adjusted Appreciation FMV Basis $ 14,000 $ 14,000 Cash Receivables 21,000 94,000 204, 21,000 47,000 74,000 47,000 130,000 Building Land $333,000 $156,000 $177,000 Total $ 25,000 $ 25,000 108,000 Payables Mortgage* 108,000 $133,000 $133,000 Total *The mortgage is attached to the building and land. Ernesto was asking for $412,000 for the company. His tax basis in the BLI stock was $160,000. Included in the sale price was an unrecognized customer list valued at $160,000. The unallocated portion of the purchase price ($52,000) 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 $206,000 plus voting stock in STS worth $206,000. Ernesto will become a 10 percent shareholder in STS after the transaction Problem 19-49 Part a a. Will the continuity of ownership interest (COI) requirements for a straight Type A merger be met? Yes ONo Problem 19-49 Part b 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? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Gain or loss recognized Corporate-level tax Problem 19-49 Part c c. What amount of gain or loss does Ernesto recognize if the transaction is structured as a Type A merger? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Gain or loss recognized Problem 19-49 Part d d. What is Ernesto's tax basis in the STS stock he receives in the exchange? (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Tax basis