Required information

[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:

	FMV			Adjusted Basis			Appreciation
Cash	$	29,000		$	29,000
Receivables		17,300			17,300
Building		124,500			62,250			62,250
Land		295,500			98,500			197,000
Total	$	466,300		$	207,050		$	259,250
Payables	$	21,400		$	21,400
Mortgage*		161,000			161,000
Total	$	182,400		$	182,400

* The mortgage is attached to the building and land. Ernesto was asking for $500,650 for the company. His tax basis in the BLI stock was $114,000. Included in the sales price was an unrecognized customer list valued at $117,000. The unallocated portion of the purchase price ($99,750) will be recorded as goodwill. (Negative amounts should be indicated by a minus sign.)

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?

Cash Paid --------------------?

Liabilities assumed ---------------?

Amount realized -------------------?

Adjusted Basis -----------------?

Gain or Loss recognized ---------------?3

1. c1. What are the tax benefits, if any, to Amy and Brian as a result of structuring the acquisition as a direct asset purchase?
2. c2. What is the tax basis in the assets received by Amy and Brian?

Tax Rate ------ %

Tax ----------------?

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 part (a)] to Ernesto in liquidation of his stock?

Gain or loss recognized ------------------?

c

1. c1. What is the tax basis in the assets received by Amy and Brian?

Cash ---------------------------?

Accounts Receiveble ------------------?

Building ---------------------------?

Land ---------------------------?

Customer List --------------------?

Good will ------------------------?

Total ---------------------------?