LO.6 Emily and Freda are negotiating with George to purchase the business he operates as Pelican, Inc. The assets of Pelican, Inc., a C corporation, are recorded as follows.

Asset Cash Accounts receivable Inventory Furniture and fixtures Building Land Basis $ 20,000 50,000 FMV $ 20,000 50,000 100,000 110,000 150,000 170,000* 200,000 250,000** 40,000 150,000 *Potential depreciation recapture is $45,000. The straight-line method was used to depreciate the building. Accumulated depreciation is $340,000. George's basis for the Pelican stock is $560,000. George is subject to a 32% marginal tax rate.

a. Emily and Freda purchase the stock of Pelican from George for $908,000. Deter- mine the tax consequences to Emily and Freda, Pelican, and George.

b. Emily and Freda purchase the assets from Pelican for $908,000. Determine the tax consequences to Emily and Freda, Pelican, and George.

c. The purchase price is $550,000 because the fair market value of the building is $150,000 and the fair market value of the land is $50,000. No amount is assigned to goodwill. Emily and Freda purchase the stock of Pelican from George. Deter- mine the tax consequences to Emily and Freda, Pelican, and George.