1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Ann [662]
3 years ago
11

Amy and Brian agreed to pay $385,000 for the company. Ernesto has a tax basis in the BLI stock was $100,000. Included in the sal

es price was an unrecognized customer list valued at $100,000. The unallocated portion of the purchase price ($65,000) will be recorded as goodwill. The corporate-level tax of 21 percent applies to BLI as a result of the transaction. What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale by BLI to Amy and Brian and BLI distributes the after-tax proceeds to Ernesto in liquidation of his stock?
Business
1 answer:
Scrat [10]3 years ago
6 0

Answer:

a. $380,000; $129,200 b. $170,000 c. $530,000

Question ( In proper order )

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                 $  10,000         $ 10,000

Receivables         15,000             15,000  

Building                100,000          50,000                      $ 50,000

Land                      <u>225,000 </u>       <u>75,000 </u>                       <u> 150,000</u>

Total                  $<u> 350,000</u>     $ <u>150,000</u>                     $ <u>200,000 </u>

Payables           $ 18,000         $ 18,000

Mortgage*             <u>112,000  </u>         <u>112,000</u>

Total                  $  <u>30,000 </u>      $  <u>130,000 </u> 

*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 ($80,000) will be recorded as goodwill.

a) What amount of gain or loss does BLI recognize if the transaction is structured as a direct asset sale to Amy and Brian? What amount of corporate-level tax does BLI pay as a result of the transaction, assuming a tax rate of 34 percent?

b) What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale to Amy and Brian, and BLI distributes the after-tax proceeds (computed in question a) to Ernesto in liquidation of his stock?  

c) What are the tax benefits, if any, to Amy and Brian as a result of structuring the acquisition as a direct asset purchase?

Explanation:

[a] The gain recognized by BLI is given in the table below

Gain or Loss Account

Fair market value of the stock received                 $ 400,000

+ Mortgage assumed by corporation                         130,000

Total Amount                                                                530,000

- Aggregate basis of the property transferred           150,000

Gain recognised                                                           380,000

the gain recognised = $380,000

corporate tax = 380,000 × 34%

                       = 380,000 × 0.34

                       = $ 129,200

[b]  Gain or Loss recognized by Ernesto

cash net received by ernesto

$400,000 - $129,200 (Taxes paid) = $270,800

Capital gain is computed thus

$270,000 - $100,000 = $170,000

[c] Tax basis for Amy and Brian is equal to the total fair market value as given in the table below

Cash                                    10,000

Account receivables          150,000

Building                               100,000

Land                                    225,000

Customer List                     100,000

Goodwill                              80,000

Total                                     530,000

summary tax basis for both Amy and Brian is $530,000

You might be interested in
Hinge Manufacturing's cost of goods sold is $420,000 variable and $240,000 fixed. Thecompany's selling and administrative expens
MrRissso [65]

Answer:

Contribution margin= $960,000

Explanation:

Giving the following information:

Hinge Manufacturing's:

Cost of goods sold variable= $420,000

Cost of goods sold fixed= $240,000

The company's selling and administrative expenses are $300,000

variable and $360,000fixed.

If the company's sales are $1,680,000

Sales= 1680000

Variable cost of goods sold= 420000

Variable selling and administrative expenses=300000

Contribution margin= $960,000

8 0
3 years ago
Which of the following is false? Economists who advocate discretionary monetary policy argue that it is more likely to achieve t
just olya [345]

Answer: None of the above

Explanation:

All of the above are correct.

For option A, Economists who advocate discretionary monetary policy do indeed believe that the monetary authority using this policy is more flexible to shape the best monetary policy to the existing circumstances.

Option B is also correct because Crowding out occurs when the government increases investment by borrowing which leaves less money for the private sector to borrow so they spend less. The government spent money here yet the private sector did not spend less so it is Zero Crowing out.

Option C by option B's explanation holds true because the entire amount the Government increased by was denied the private sector.

Option D is also true as not all Economists prefer rule-based monetary policy to discretionary monetary policy.

They are all true.

3 0
3 years ago
Pinnacle Financial Services managers meet annually to create a list of potential future complications and plan how to respond to
Virty [35]

Answer: contingency

Explanation:

Contingency planning is a form of planning that is used by an organization in order to plan ahead in case an event occurs. Contingency plans can also be called a 'Plan B' due to the fact that it's an alternative action in case things does not go as planned.

Therefore, based on the question, Pinnacle is practicing contingency planning.

7 0
3 years ago
Dave harris has just purchased a bond with a face value of $1,000 that pays 6 percent. the purchase price of the bond was $900,
Vilka [71]
The yield of maturity for this bond is "8.4 percent".
We can calculate this in the following way;
<span>Yield to maturity = YTM = {($1,000 x .06) + [($1,000 - 900)/5]}/[($900 + $1,000)/2]
=(60 + 20) / (950)
=80/950
=0.084 
=0.084 x 100
= 8.4 percent</span>
8 0
3 years ago
The management of Metro Printers is considering a proposal to replace some existing equip- ment with a new highly efficient lase
Veseljchak [2.6K]

Answer:

Net present value of proposal $168,166

Explanation:

Check attachment

3 0
3 years ago
Other questions:
  • Ben Chang noticed that his store was lagging in sales. He realized that his staff was not experienced enough. As the store manag
    15·2 answers
  • ABC Bookstore sells packages of books that include both new and used
    7·1 answer
  • Typically, B2B buyers ask potential suppliers to (A) write the RFP for the buyer.(B) submit formal proposals.(C) sponsor intervi
    14·1 answer
  • George had a previous balance on his credit card of $330.19 on which he paid $50.00. He
    9·1 answer
  • Carpenter Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the
    14·1 answer
  • 1. Formulate a unique business idea and state the mission and vision statements
    9·1 answer
  • Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution a
    7·1 answer
  • When they produce 20,000 units per month, Sanders Incorporated has variable costs of $392,000 and fixed costs of $242,000. If Sa
    12·1 answer
  • Question 6 Paige Company estimates that unit sales will be 11,100 in quarter 1, 12,300 in quarter 2, 14,500 in quarter 3, and 18
    11·1 answer
  • Activities performed by an applicant after an interview intended to express continued interest in employment with the
    12·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!