What amount of gain or loss does Ernesto recognize if the transaction is structured as a Type A merger? [The following information applies to the questions displayed below.]Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (BLI). As part oftheir discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's taxaccounting balance sheet. The relevant information is summarized as follows: (Leave no answer blank. Enter zero ifapplicable. Negative amounts should be indicated by a minus sign.)CashReceivablesBuildingLandTotalFMV19,00024,00071,000155,000$ 269,000PayablesMortgage*Adjusted TaxBasis$ 19,00024,00035,50050,000$ 128,500$ 27,00089,000$ 116,000Total* The mortgage is attached to the building and land.$ 27,00089,000$ 116,000Appreciation35,500105,000$ 140,500Ernesto was asking for $420,000 for the company. His tax basis in the BLI stock was $180,000. Included in the sales pricewas an unrecognized customer list valued at $180,000. The unallocated portion of the purchase price ($87,000) will berecorded as goodwill.Rather than purchase BLI directly, Amy and Brian will have their corporation, Spartan Tax Services (STS), acquire thebusiness from Ernesto in a tax-deferred Type A merger. Amy and Brian would like Ernesto to continue to run BLI, which heagreed to do if he could obtain an equity interest in STS. As part of the agreement, Amy and Brian propose to pay Ernesto$210,000 plus voting stock in STS worth $210,000. Ernesto will become a 10 percent shareholder in STS after thetransaction.

Merger refers to a union where two or more companies join their businesses. Under a merger, one…

Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (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: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Cash Receivables Building Land FMV 19,000 24,000 71,000 155,000 aco.000 Adjusted Tax Basis $ 19,000 24,000 35,500 50,000 120 500 Appreciation 35,500 105,000 140 500

Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Incorporated (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: (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) Cash Receivables Building Land FMV 19,000 24,000 71,000 155,000 aco.000 Adjusted Tax Basis $ 19,000 24,000 35,500 50,000 120 500 Appreciation 35,500 105,000 140 500

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter13: Choice Of Business Entity—general Tax And Nontax Factors/formation

Section: Chapter Questions

Problem 55P

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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: PMV Adjusted Bais Appreciation Cash $14,000 $14,000 Receivables $19,100 $19,100 Building $130,000 $65,000 $65,000 Land $247,500 $82,500 $165,000 Total $410,600 $180,600 $230,000 Payables $23,900 $23,900 Mortage* 138,000 $138,000 Total $161,900 $161,900 *The mortage is attached to the building and land Ernesto was asking for $535,450 for the company. His tax basis is in the…
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