Marry owns all the stock of Gold, Inc., a C corporation for which his adjusted basis...

 

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Marry owns all the stock of Gold, Inc., a C corporation for which his adjusted basis is $225,000. Marry founded Gold 12 years ago. The assets and liabilities of Gold are recorded as follows. Basis FMV Assets Cash $ 15,000 $ 15,000 Accounts receivable -0- 25,000 Inventory 30,000 35,000 Machinery and equipment" 70,000 90,000 Land 60,000 150,000 175,000 315,000 Liabilities Basis FMV Accounts payable $5,000 $ 5,000 Notes payable 10,000 10,000 15,000 15,000 *Gold deducted $55,000 of depreciation. Marry has agreed to sell the business to Bob and they have agreed on a purchase price of $350,000 less any outstanding liabilities. They are both in the 35% tax bracket. Required: (a) Advise Marry on whether the form of the sales transaction should be a stock sale or an asset sale. Compute Marry's after-tax cash flow under each option. (b) Advise Bob on whether the form of the purchase transaction should be a stock purchases or an asset purchase. Marry owns all the stock of Gold, Inc., a C corporation for which his adjusted basis is $225,000. Marry founded Gold 12 years ago. The assets and liabilities of Gold are recorded as follows. Basis FMV Assets Cash $ 15,000 $ 15,000 Accounts receivable -0- 25,000 Inventory 30,000 35,000 Machinery and equipment" 70,000 90,000 Land 60,000 150,000 175,000 315,000 Liabilities Basis FMV Accounts payable $5,000 $ 5,000 Notes payable 10,000 10,000 15,000 15,000 *Gold deducted $55,000 of depreciation. Marry has agreed to sell the business to Bob and they have agreed on a purchase price of $350,000 less any outstanding liabilities. They are both in the 35% tax bracket. Required: (a) Advise Marry on whether the form of the sales transaction should be a stock sale or an asset sale. Compute Marry's after-tax cash flow under each option. (b) Advise Bob on whether the form of the purchase transaction should be a stock purchases or an asset purchase.

Answer rating: 100% (QA)

a Stock Sale Marry would recognize a longterm capital gain of 125000 350000 225000 which would be ta... View the full answer