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Required information Problem 8-59 (LO 8-4) (Algo) (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 FMV Basis Appreciation Cash $ 11, 090 $ 11, 006 Receivab 19, 606 19, 006 Building 92, 000 46, 900 46, 900 _and 195, 000 85, 000 110, 000 Total $317, 000 $161, 000 $156, 000 Payables $ 23, 090 $ 23, 006 Mortgage* 104, 090 104, 900 Total $127, 000 $127, 000 The mortgage is attached to the building and land. Ernesto was asking for $408,000 for the company. His tax basis in the BLI stock was $150,000. Included in the sales price was an unrecognized customer list valued at $150,000. The unallocated portion of the purchase price ($68,000) 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 $204,000 plus voting stock in STS worth $204,000. Ernesto will become a 10 percent shareholder in STS after the transaction. Problem 8-59 Part d (Algo) 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 basisRequired information Problem 8-59 (LO 8-4) (Algo) [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 FMV Basis Appreciation Cash $ 11, 090 $ 11, 000 Receivables 19, 000 19, 006 Building 92, 000 46, 006 46, 900 Land 195, 000 85, 000 110, 000 Total $317, 000 $161, 000 $156, 000 Payables $ 23, 090 $ 23,000 Mortgage* 104, 090 104, 900 Total $127, 000 $127, 000 The mortgage is attached to the building and land. Ernesto was asking for $408,000 for the company. His tax basis in the BLI stock was $150,000. Included in the sales price was an unrecognized customer list valued at $150,000. The unallocated portion of the purchase price ($68,000) 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 $204,000 plus voting stock in STS worth $204,000. Ernesto will become a 10 percent shareholder in STS after the transaction. Problem 8-59 Part e (Algo) e. What is the tax basis of each of the BLI assets held by STS after the merger? O Carryover basis Fair market value Carryover basis plus gain recognized by Ernesto
