Question

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

Receivable 15,000 15,000 50,000   

Building 100,000 50,000 100,000

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

Ernesto was asking for $400,000 for the company. His tax basis in the BLI stock was $100,000. Included in the sale price was an unrecognized customer list value at $100,000. The unallocated portion of the purchase price ($80,000) will be goodwill.

  

Answer 1

Particulars	FMV	Adjusted Basis	Appreciation
Cash	10000	10000
Receivable	15000	15000
Building	100000	50000	50000
Land	225000	75000	150000
Total	350000	150000	200000
Payables	18000	18000
Mortgage	112000	112000
Total	130000	130000

Amount Realised from the sale is
Particulars	Amount $
Cash	10,000
Receivable	15,000
Building	1,00,000
Land	2,25,000
Customer List	1,00,000
Good will	80,000
Total	5,30,000

Gain from the Sale
Particulars	Amount $
Amont realised	5,30,000
Less: Adjusted basis of asset value	1,50,000
Gain from the Sale	3,80,000

Corporate Tax @ 34% = $ 380,000 * 34%

= $ 129,200