Questionbailey corp owns a number of automotive parts shops

Reference no: EM13348491

Question:

Bailey corp owns a number of automotive parts shops. Bill smith owns an automotive parts shop that has been in existence for 40 years and has competed with one of bailey's branches. Bill is considering retiring and could like to sell his business. He has his CPA create a balance sheet, which he presents to John Bailey, president of Bailey corp and a long-time friend of Bill's.

Assets: Cash; A/R; Inventories(LIFO); equipment; Building;

land adjusted basis: 250,000; 75,000; 600,000; 200,000; 30,000; 30,000

FMV: 250,000; 70,000; 1,750,000; 250,000; 285,000; 115,000

Totals: Adjusted basis = 1,185,000

FMV= 2,720,000

If Bailey corp pursues the acquisition, it will operate the automotive parts shop under its own trade name in the location Bill has used for 40 years. Mr. Bailey has asked you to prepare a summary of the tax consequences of the following three transactions: (1) a cash purchase of the noncash assets, (2) a purchase of the stock of Bill's corp with cash and Bailey notes, and (3) an asset-for-stock reorganization conducted exclusively with Bailey stock. Upon interviewing Bill, you obtain the following additional information: Bill's business is operated as a C corp. Bill has $160,000 adjusted basis in his stock. Accounts payable of $200,000 are outstanding. The corp has depreciated the building under the straight-line method and to date has claimed $100,000 in depreciation. The equipment is Sec. 1245 property for which the corp has claimed $150,000 in depreciation. The after-tax profits in each of the last three years have exceeded $300,000. Bill suspects that some goodwill value exists that is not shown on the balance sheet. No NOL carryovers are available from prior years.

Required:

Prepare a memorandum that outlines the tax consequences of each of the three alternative acquisitions. Assume that the anticipated cash purchase price is $2.55 million for the noncash assets and $2.6 million for the stock. Furthermore, assume that the transaction takes place in the current year. How would the acquiring corp report each of the three alternatives under GAAP?

Reference no: EM13348491

Questions Cloud

Questionq suppose u borrow rs 5 lakh 4 ur colege year the : questionq. suppose u borrow rs. 5 lakh 4 ur colege year. the loan wil b paid off over 5 yrs. the loan carries 8 annual

Questionconsider a ram of 4m words x 32 bitsword that has : questionconsider a ram of 4m words x 32 bitsword that has data lines address lines read and write down and select

Question 1brenda formed a public relations firm in 2011 : question 1brenda formed a public relations firm in 2011 brenda pr by contributing 10000 for 100 of its common stock.

Questionyour company has seen significant internal projects : questionyour company has seen significant internal projects go off course during implementation. after-the-fact

Questionbailey corp owns a number of automotive parts shops : questionbailey corp owns a number of automotive parts shops. bill smith owns an automotive parts shop that has been in

Questionkaiser company is interested in applying activity : questionkaiser company is interested in applying activity base costing in the company. management appointed a

Questionin this assignment you will plan and write a gui : questionin this assignment you will plan and write a gui program to calculate pay for different types of employees.

Questionlangrova inc has the subsequent amounts included : questionlangrova inc. has the subsequent amounts included inits general ledger at december 31 2010.organization costs

Questionexpand class linkedlisttype by adding following : questionexpand class linkedlisttype by adding following operations-1- inscribe a function noduplicates that insert an

User Account

All Pages