# Emily and Freda are negotiating with George to purchase the business he operates as Pelican, Inc. The assets of Pelican,

## 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.