Exam 7: Corporate Acquisitions and Reorganizations

American Corporation acquires the noncash assets of Utech Corporation in exchange for $700,000 of its voting stock plus $50,000 of cash.Utech Corporation assets are worth $750,000.Utech Corporation does not distribute the stock and cash but instead holds the stock as an investment.Utech will use the American cash along with the cash it retained to start a new business.The transaction can be classified as a

Acme Corporation acquires Fisher Corporation's assets in a Type A reorganization for $800,000 of Acme's nonvoting preferred stock and $200,000 (face amount and FMV)of securities.The assets have an adjusted basis of $600,000 and an FMV of $1,500,000.In addition,Acme Corporation assumes $500,000 of Fisher's liabilities.At the time of the transfer,Acme's E&P is $400,000.Fisher distributes the stock and securities to its sole shareholder Barbara for all of her Fisher stock.After the reorganization,Barbara owns 25% of Acme's stock.Barbara has an adjusted basis of $400,000 in her Fisher stock.Barbara must recognize a gain of

Type A reorganizations include mergers and consolidations.

Acquiring Corporation is 100%-owned by Peter Hart.Target Corporation is 100% owned by Dick Weber.The two individuals are not related.Target Corporation has $400,000 of NOL carryovers at the time Acquiring Corporation is considering making a cash acquisition of part or all of Target Corporation's stock.What is the maximum amount of Target stock that can be acquired in a single transaction without the Sec.382 loss limitation rules applying to the NOLs?

Paper Corporation adopts a plan of reorganization and exchanges 1,000 shares of its voting stock and $50,000 in cash for Chase Corporation's assets having a $200,000 adjusted basis and a $275,000 FMV.Chase Corporation is subsequently liquidated.What is Paper Corporation's basis in the assets acquired in the exchange?

Identify which of the following statements is true.

Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?

Identify which of the following statements is true.

In a Sec.338 election,the target corporation

Bob exchanges 4,000 shares of Beetle Corporation stock that he had purchased for $800,000 for 6,000 shares of Butterfly Corporation common stock with a fair market value of $1,000,000.What is Bob's recognized gain on the exchange and his basis in the Butterfly stock?

Identify which of the following statements is false.

Axle Corporation acquires 100% of Drexel Corporation's stock from Drexel's shareholders for $500,000 cash.Drexel Corporation has assets with a $600,000 adjusted basis and an $800,000 FMV.The assets are subject to $200,000 in liabilities.Drexel Corporation shareholders purchased their stock eight years ago for $300,000.Axle Corporation's basis in the Drexel Corporation stock is

Identify which of the following statements is true.

In a Type B reorganization,the acquiring corporation obtains substantially all of the target corporation's assets in exchange for its voting stock and a limited amount of other consideration.

Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year.Melon Corporation uses a calendar tax year.To use the Sec.338 election,Melon Corporation must purchase

Identify which of the following statements is true.

Identify which of the following statements is false.

Martha owns Gator Corporation stock having an adjusted basis of $21,000.As part of a tax-free reorganization involving Gator and Baker Corporations,Martha exchanges her Gator stock for $18,000 of Baker stock and $6,000 (face amount and FMV)of Baker securities.What is Martha's basis in the Baker stock?

In a Type B reorganization,the target corporation exchange their stock for the acquiring corporation's voting stock,and the target corporation remains in existence as the acquiring corporation's subsidiary.

Advance rulings are required for all reorganizations.