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COMPREHENSIVE PROBLEMS a connect Select problems are available in Connect®. 56. Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defen- sive third baseman in major league history and his nickname, “The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to op- erate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorpora- tion. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Balance Sheet Adjusted Basis FMV Assets Accounts receivable 2$ 5,000 Cleaning equipment (net) 25,000 20,000 Building 50,000 75,000 Land 25,000 50,000 Total assets $100,000 $150,000 Liabilities Accounts payable $0 $ 10,000 Salaries payable 5,000 Mortgage on land and building 35,000 35,000 Total liabilities $ 35,000 $ 50,000 1) How would you answer the question in part (b) if Brooks had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? b) How much, if any, gain or loss (on a per-asset basis) does Brooks recognize?|

COMPREHENSIVE PROBLEMS a connect Select problems are available in Connect®. 56. Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defen- sive third baseman in major league history and his nickname, “The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to op- erate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorpora- tion. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Balance Sheet Adjusted Basis FMV Assets Accounts receivable 2$ 5,000 Cleaning equipment (net) 25,000 20,000 Building 50,000 75,000 Land 25,000 50,000 Total assets $100,000 $150,000 Liabilities Accounts payable $0 $ 10,000 Salaries payable 5,000 Mortgage on land and building 35,000 35,000 Total liabilities $ 35,000 $ 50,000 1) How would you answer the question in part (b) if Brooks had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? b) How much, if any, gain or loss (on a per-asset basis) does Brooks recognize?|

College Accounting (Book Only): A Career Approach
College Accounting (Book Only): A Career Approach
13th Edition
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:Scott, Cathy J.
Chapter3: The General Journal And The General Ledger
Section: Chapter Questions
Problem 1A: Why Does It Matter? ECOTOUR EXPEDITIONS, INC., Jamestown, Rhode Island You probably have never...
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COMPREHENSIVE PROBLEMS a connect Select problems are available in Connect®. 56. Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defen- sive third baseman in major league history and his nickname, “The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to op- erate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorpora- tion. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Balance Sheet Adjusted Basis FMV Assets Accounts receivable 2$ 5,000 Cleaning equipment (net) 25,000 20,000 Building 50,000 75,000 Land 25,000 50,000 Total assets $100,000 $150,000 Liabilities Accounts payable $0 $ 10,000 Salaries payable 5,000 Mortgage on land and building 35,000 35,000 Total liabilities $ 35,000 $ 50,000
Transcribed Image Text:COMPREHENSIVE PROBLEMS a connect Select problems are available in Connect®. 56. Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defen- sive third baseman in major league history and his nickname, “The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to op- erate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorpora- tion. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Balance Sheet Adjusted Basis FMV Assets Accounts receivable 2$ 5,000 Cleaning equipment (net) 25,000 20,000 Building 50,000 75,000 Land 25,000 50,000 Total assets $100,000 $150,000 Liabilities Accounts payable $0 $ 10,000 Salaries payable 5,000 Mortgage on land and building 35,000 35,000 Total liabilities $ 35,000 $ 50,000
1) How would you answer the question in part (b) if Brooks had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? b) How much, if any, gain or loss (on a per-asset basis) does Brooks recognize?|
Transcribed Image Text:1) How would you answer the question in part (b) if Brooks had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? b) How much, if any, gain or loss (on a per-asset basis) does Brooks recognize?|
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