Ask Question, Ask an Expert


Ask Accounting Basics Expert

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 would like to sell his business. He has his CPA prepare 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?


Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M945287

Have any Question? 

Related Questions in Accounting Basics

Problem -a list of transactions appears below indicate

Problem - A list of transactions appears below. Indicate which accounting elements of the business are affected by placing in the respective columns the amount and the + (increasing) - (decrease) sign or NA, if the eleme ...

Question 1medeco bought goods for 250 on credit medeco

Question 1 Medeco bought goods for $250 on credit. Medeco returned $50 worth of goods. Terms of the sale were 2/10, n/30. If Medeco pays the amount owed within the discount period, what is the amount it should pay? A. $2 ...

1 regarding the ottoman territories during the period

1. Regarding the Ottoman territories during the period immediately following World War I, which of the following statements is false? A. Defying Allied pressure, the Turkish sultan supported Kemal. B. In 1921, Greek forc ...

Accounting assignmentaccounting is the study of how

Accounting Assignment Accounting is the study of how businesses track their income and assets over time. Accountants engage in a wide variety of activities in addition to preparing financial statements and recording busi ...

Activity your accounting firm pennypacker amp vandelay llc

Activity: Your accounting firm, Pennypacker & Vandelay, LLC, has been asked by the Chairman of Harris Memorial Hospital and Harris Community Foundation to attend the annual board meeting to present the report of the Inde ...

Principles of accountingthere are 10 questions each worth

Principles of Accounting There are 10 questions, each worth 10 points. Answer them fully and upload your document to the dropbox below. QUESTION 1 Harriet's Toy Shop had net sales of $852,000. The gross profit was $230,0 ...

A company is considering to replace an existing machine for

A Company is considering to replace an existing machine for which two suppliers have given quotation. Supplier A has proposed a machine costing Rs. 180 lakh that uses the existing boiler while supplier B has quoted for t ...

Assignmentcarol is a single mother who owns a wholesale

Assignment Carol is a single mother who owns a wholesale auto parts distributorship. The business is organized as a sole proprietorship. Her business has advanced, and she can no longer devote the time necessary to do he ...

Accounting assignmentbullemployee theft is a major problem

Accounting Assignment • Employee theft is a major problem in the U.S. retail industry. Information obtained from SecurityInfoWatch reported that twenty three (23) major retailers alone apprehended over 1.1 million shopli ...

Ics manufacturing company produces plastic parts for the

ICS Manufacturing Company produces plastic parts for the automotive industry. Here is their Income Statement for 2015 - ICS Manufacturing Company Income Statement for 2015 Sales Revenue $35,500,000 Cost of Goods Sold 12, ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro