c. What amount of gain or loss does Ernesto recognize if the transaction is structured as a Type A merger? d. What is Ernesto’s tax basis in the STS stock he receives in the exchange? Required information[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.)Adjusted TaxBasis$ 15,00022,000FMVAppreciationCashReceivablesBuilding15,00022,00095,000204,000$ 336,00047,50044,00047,500160,000$ 207,500Land$ 128,500Total$ 24,000113,000$ 24,000PayablesMortgage*113,000$ 137,000* The mortgage is attached to the building and land.$ 137,000TotalErnesto was asking for $432,000 for the company. His tax basis in the BLI stock was $165,000. Included in the sales pricewas an unrecognized customer list valued at $165,000. The unallocated portion of the purchase price ($68,000) 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$216,000 plus voting stock in STS worth $216,000. Ernesto will become a 10 percent shareholder in STS after thetransaction.b. What amount of gain or loss does BLI recognize if the transaction is structured as a Type A merger? What amount of corporate-leveltax does BLI pay as a result of the transaction, assuming a tax rate of 21 percent?Gain or loss recognized92,505Corporate-level tax$92,505

Capital gain refers to the sum value of money gained by an entity while selling an asset in the…

Business

Accounting

iz

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 60P

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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: FMV Adjusted Basis AppreciationCash$25,500 $25,500 Receivables 23,200 23,200 Building 133,000 66,500 66,500Land 272,250 90,750 181,500Total$453,950 $205,950 $248,000 Payables$23,000 $23,000 Mortgage* 150,000 150,000 Total$173,000 $173,000 * The mortgage is attached to the building and land. Ernesto was asking for $568,950 for the company. His tax basis in the BLI stock was $148,000. Included in the sales price was an unrecognized customer list valued at $196,000. The unallocated portion of the purchase price ($92,000) will be recorded as goodwill. (Negative amounts should be indicated by a minus sign.)
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: FMV Adjusted Basis Appreciation Cash $ 14,500 $ 14,500 Receivables 18,800 18,800 Building 102,500 51,250 51,250 Land 260,250 86,750 173,500 Total $ 396,050 $ 171,300 $ 224,750 Payables $ 19,100 $ 19,100 Mortgage* 159,000 159,000 Total $ 178,100 $ 178,100 * The mortgage is attached to the building and land. Ernesto was asking for $445,700 for the company. His tax basis in the BLI stock was…
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: FMV Adjusted Basis Appreciation Cash $ 14,500 $ 14,500 Receivables 18,800 18,800 Building 102,500 51,250 51,250 Land 260,250 86,750 173,500 Total $ 396,050 $ 171,300 $ 224,750 Payables $ 19,100 $ 19,100 Mortgage* 159,000 159,000 Total $ 178,100 $ 178,100 * The mortgage is attached to the building and land. Ernesto was asking for $445,700 for the company. His tax basis in the BLI stock was…
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: \table[[,,Adjusted Tax,],[Cash,\table[[FMV],[$10,500
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: FMV Adjusted Basis Appreciation Cash $ 16,000 $ 16,000 Receivables 17,500 17,500 Building 102,000 51,000 51,000 Land 249,000 83,000 166,000 Total $ 384,500 $ 167,500 $ 217,000 Payables $ 24,300 $ 24,300 Mortgage* 110,250 110,250 Total $ 134,550 $ 134,550 * The mortgage is attached to the building and land. Ernesto was asking for $482,700 for the company. His tax basis in the BLI stock was $192,000. Included in the sales price was an unrecognized customer list valued at $132,000. The unallocated portion of the purchase price ($100,750) will be recorded as…
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.) FMV Adjusted Tax Basis Appreciation Cash $ 6,000 $ 6,000 Receivables 9,000 9,000 Building 114,000 57,000 57,000 Land 248,000 78,000 170,000 Total $ 377,000 $ 150,000 $ 227,000 Payables $ 11,000 $ 11,000 Mortgage* 134,000 134,000 Total $ 145,000 $ 145,000 * The mortgage is attached to the building and land. Ernesto was asking for $574,000 for the company. His tax basis in the BLI stock was $190,000. Included in the sales price was an unrecognized customer list valued at $190,000. The unallocated portion of the purchase price…
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: Note: Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign. FMV Adjusted Tax Basis Appreciation Cash $ 10,000 $ 10,000 Receivables 15,000 15,000 Building 100,000 50,000 50,000 Land 225,000 75,000 150,000 Total $ 350,000 $ 150,000 $ 200,000 Payables $ 18,000 $ 18,000 Mortgage* 112,000 112,000 Total $ 130,000 $ 130,000 * The mortgage is attached to the building and land. Ernesto was asking for $400,000 for the company. His tax basis in the BLI stock was $100,000. Included in the sales price was an unrecognized customer list valued at $100,000. The unallocated portion of the purchase price…
Emerald Corporation is required to change its method of accounting for Federal income tax purposes. The change will require an adjustment to income to be made over three tax periods. Jonas, the sole shareholder of Emerald Corporation, wants to better understand the implications of this adjustment for E & P purposes, because he anticipates a distribution from Emerald in the current year. Prepare a memo for your firm’s client files describing the results of your research.
Green Corporation is required to change its method of accounting for federal income tax purposes. The change will require an adjustment to income to be made over three tax periods. Joe, the sole shareholder of Green, wants to better understand the implications of this adjustment for E&P purposes, because he anticipates a distribution from Green in the current year. Explain to Joe the impact of the adjustment on E&P.
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Th e following information pertains to Entiguan Sports, a hypothetical developer ofproducts used to treat sports-related injuries. (Th e treatment of items for accountingand tax purposes is based on fi ctitious accounting and tax standards and is not specifi cto a particular jurisdiction.) Calculate the tax base and carrying amount for each item.1 . Dividends receivable : On its balance sheet, Entiguan Sports reports dividends of €1million receivable from a subsidiary. Assume that dividends are not taxable.2 . Development costs : Entiguan Sports capitalized development costs of €3 millionduring the year. Entiguan amortized €500,000 of this amount during the year. Fortax purposes amortization of 25 percent per year is allowed.3 . Research costs : Entiguan incurred €500,000 in research costs, which were all expensedin the current fi scal year for fi nancial reporting purposes. Assume that applicable taxlegislation requires research costs to be expensed over a four-year period rather…
During a recent IRS audit, the revenue agent decided that the Parker family used their closely held corporation, Falco, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Falco’s taxable income was $970,000, it paid no dividends, and it had no business need to retain income. Falco's marginal tax rate in prior years was 34 percent. Assume the accumulated earnings tax rate is 20% for all applicable years in this problem. Required: Compute Falco’s accumulated earnings tax assuming that it had accumulated $6 million after-tax income in prior years. Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without demonstrating a reasonable business need for the accumulation. Compute Falco’s accumulated earnings tax assuming that it had accumulated $137,000 after-tax income in prior years. Assume that for these years at issue, a corporation is exempt up to $250,000 of accumulated earnings without…