Question
Tax Case 4 Goodwill Acquired in an Acquisition Is it Deductible? As the CFO of General Dynamo, you are very excited as you have just
Tax Case 4
Goodwill Acquired in an Acquisition Is it Deductible?
As the CFO of General Dynamo, you are very excited as you have just completed the negotiations related to the purchase of Apex Systems, a complimentary business to General Dynamo. The sole shareholder of Apex has agreed to either of the following purchase offers:
A: General Dynamo will pay $10,000,000 for 100% of the outstanding stock of Apex
OR
B: General Dynamo will pay $11,000,000 for 100% of the net assets of Apex, which includes all tangible and intangible assets as well as all recorded liabilities.
The fair value of the acquired assets and liabilities is as follows:
Current Assets (Tangible) $2,500,000
Long Term Assets (Tangible) $4,000,000
Liabilities $3,500,000
Net Tangible Assets Acquired $3,000,000
Based solely on the net after-tax cost of the acquisition, which purchase offer should you choose: A or B? Why?
Why does the seller require a higher price to be paid for acquiring net assets versus stock? What internal revenue service code section addresses how sales of assets versus sales of stock are taxed? What are the significant differences? What period may the goodwill be deducted for tax purposes? Why do you think the Internal Revenue Service treats these two purchase offers differently?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started