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-1. What is the nature of tax benefits to Amy and Brian as a result of structuring the acquisition as a direct asset purchase? Tax basis in the assets received equal to the assets' fair market value. No tax benefits.

c-2. What is the tax basis in the assets received by Amy and Brian?

Transcribed Image Text:

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: * Cash Receivables Building Land Total Payables Mortgage* Total Adjusted Basis $ 28,500 20,400 63,500 77,750 FMV $ 28,500 20,400 127,000 233,250 $409,150 $190,150 $ 24,200 174,750 $198,950 $ 24,200 174,750 $198,950 Appreciation 63,500 155,500 $219,000 The mortgage is attached to the building and land. Ernesto was asking for $496,950 for the company. His tax basis in the BLI stock was $146,000. Included in the sale price was an unrecognized customer list valued at $189,000. The unallocated portion of the purchase price ($97,750) will be recorded as goodwill. (Negative amounts should be indicated by a minus sign.) 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: * Cash Receivables Building Land Total Payables Mortgage* Total Adjusted Basis $ 28,500 20,400 63,500 77,750 FMV $ 28,500 20,400 127,000 233,250 $409,150 $190,150 $ 24,200 174,750 $198,950 $ 24,200 174,750 $198,950 Appreciation 63,500 155,500 $219,000 The mortgage is attached to the building and land. Ernesto was asking for $496,950 for the company. His tax basis in the BLI stock was $146,000. Included in the sale price was an unrecognized customer list valued at $189,000. The unallocated portion of the purchase price ($97,750) will be recorded as goodwill. (Negative amounts should be indicated by a minus sign.)

Answer rating: 100% (QA)

a What amount of gain or loss does BLI recognize if the transaction is structured as a direct asset sale to Amy and Brian To calculate the gain or loss recognized by BLI in a direct asset sale we need ... View the full answer