Respuesta :
Answer:
a. $380,000; $129,200 b. $170,000 c. $530,000
Question ( In proper order )
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 $ 10,000 $ 10,000
Receivables 15,000 15,000
Building 100,000 50,000 $ 50,000
Land 225,000 75,000 150,000
Total $ 350,000 $ 150,000 $ 200,000
Payables $ 18,000 $ 18,000
Mortgage* 112,000 112,000
Total $ 30,000 $ 130,000
*The mortgage is attached to the building and land.
Ernesto was asking for $400,000 for the company. His tax basis in the BLI stock was $100,000. Included in the sales price was an unrecognized customer list valued at $100,000. The unallocated portion of the purchase price ($80,000) will be recorded as goodwill.
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, assuming a tax rate of 34 percent?
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 question a) to Ernesto in liquidation of his stock?
c) What are the tax benefits, if any, to Amy and Brian as a result of structuring the acquisition as a direct asset purchase?
Explanation:
[a] The gain recognized by BLI is given in the table below
Gain or Loss Account
Fair market value of the stock received $ 400,000
+ Mortgage assumed by corporation 130,000
Total Amount 530,000
- Aggregate basis of the property transferred 150,000
Gain recognised 380,000
the gain recognised = $380,000
corporate tax = 380,000 × 34%
= 380,000 × 0.34
= $ 129,200
[b] Gain or Loss recognized by Ernesto
cash net received by ernesto
$400,000 - $129,200 (Taxes paid) = $270,800
Capital gain is computed thus
$270,000 - $100,000 = $170,000
[c] Tax basis for Amy and Brian is equal to the total fair market value as given in the table below
Cash 10,000
Account receivables 150,000
Building 100,000
Land 225,000
Customer List 100,000
Goodwill 80,000
Total 530,000
summary tax basis for both Amy and Brian is $530,000
