Question

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 as follows.
*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 35% marginal tax rate, and Pelican faces a 34% marginal tax rate.
a. Emily and Freda purchase the stock of Pelican from George for $908,000. Determine 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. Determine the tax consequences to Emily and Freda; Pelican; and George.


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  • CreatedMay 25, 2015
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