Accounting

Emily and Freda are negotiating with George to purchase the business that he operates in corporate form (Pelican, Inc.). The assets of Pelican, Inc., a C corporation, are as follows. George’s basis for the stock of Pelican, Inc., is $560,000. George is subject to a 35% marginal tax rate, and Pelican, Inc., faces a 34% marginal tax rate.

a. Emily and Freda purchase the stock of Pelican, Inc., from George for $908,000.

Determine the tax consequences to Emily and Freda, Pelican, Inc., and George.

b. Emily and Freda purchase the assets from Pelican, Inc., for $908,000.

Determine the tax consequences to Emily and Freda, Pelican, Inc., and George.

c. The purchase price is $550,000 because the fair market value of the building is $150,000, and the fair market value of the land is $50,000. No amount is assigned to goodwill. Emily and Freda purchase the stock of Pelican, Inc., from George.

Determine the tax consequences to Emily and Freda, Pelican, Inc., and George.

Solution:

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