Sec. 338 Election. J.S. Bachman owns 100% of Legato Corporation stock, having a $437,500 basis. On December 31 of the current year, Legato Corporation reported the following balance sheet:

Staccato Corporation wishes to purchase, for cash, 80% of Legato stock from Mr. Bachman and then make a Sec. 338 election. Determine the following amounts resulting from the transaction and Sec. 338 election: Grossed-up basis (G), aggregated deemed sale price (ADSP), total gain (loss) recognized, tax liability, adjusted grossed-up basis (AGUB), basis of each asset after allocating the AGUB, and gain recognized by Mr. Bachman. Mr. Bachman’s basis in the 80% of his shares sold is $350,000 ($437,500 * 0.80). Assume a 21% corporate tax rate, and determine the required amounts in each of the following independent situations.

a. Staccato pays $532,800 for the Legato stock.

b. Staccato pays $600,000 for the Legato stock.

c. Staccato pays $470,000 for the Legato stock.

d. Staccato pays $670,000 for the Legato stock.

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Assets Adjusted Basis FMV Liabilities and Equity Amount $200,000 250,000 $100,000 750,000 Liabilities Inventory Land 250,000 600,000 Equity Total $450,000 $850,000 Total $850,000