Problem 19-58 (LO 19-4) (Algo)

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

Note: Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.

	FMV	Adjusted Tax Basis	Appreciation
Cash	$ 7,000	$ 7,000
Receivables	11,000	11,000
Building	75,000	37,500	37,500
Land	168,000	68,000	100,000
Total	$ 261,000	$ 123,500	$ 137,500
Payables	$ 14,000	$ 14,000
Mortgage*	94,000	94,000
Total	$ 108,000	$ 108,000

* The mortgage is attached to the building and land.

Ernesto was asking for $351,000 for the company. His tax basis in the BLI stock was $110,000. Included in the sales 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 $351,000.

Required:

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?

What amount of gain or loss does Ernesto recognize if the transaction is structured as a stock sale to Amy and Brian?

What are the tax benefits, if any, to Amy and Brian as a result of structuring the acquisition as a stock sale?

Answer format:

Required A- Gain or loss recgonized-

Corporate-level tax-

Required B- Gain or loss recgonized-