Bobs Burgers Inc. (BBI) is interested in acquiring Isabella’s Pastry Shop Inc. (IPS). Both entities are C‐Corporations.

The owner of BBI has made the following informal offer: BBI will purchase 100% of the shares in ISI for $20,000,000.

See information below regarding each entity and provide advice on how the two parties can complete this transaction.

1. BBI is very profitable and consistently reports at least $10 million of taxable income each year.

2. IPS has broken even each of the last three years, but reported Net Operating Losses totaling $2.5 million in its tax years before that, dating back to 2012.

3. The owner of IPS has a basis in the company’s stock of $6 million.

4. IPS’ balance sheet, which approximates fair market value, is shown below:

Balance Sheet Tax Basis

CASH 1,100,000 1,100,000

Accounts Receivable 1,300,000 ‐ I

nventory 2,500,000 2,500,000

Machinery & Equipment 5,700,000 1,000,000

Delivery Vehicles 2,300,000 ‐

Building 5,000,000 2,000,000

Total Assets 17,900,000

Accounts Payable 1,400,000

Credit Line 1,600,000

Total Liabilities 3,000,000

Equity 14,900,000

5. The buildings and vehicles would be very difficult to transfer into the name of BBI.

6. Kresco’s Supermarket Inc. owns 100% of the shares in (IPS).

7. How does your analysis change if Isabella Johnson owns 100% of the shares in (IPS) and she is interested in retaining an ownership interest in the combined company? 8. How does your analysis change if ISI is an S‐Corporation?

Answer rating: 100% (QA)

1 BBI is very profitable and consistently reports at least 10 million of taxable income each year Th... View the full answer