Question 1

Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

Accepted Answer

A) True 
 B)False

Question 2

Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer?

Accepted Answer

A)  $$\begin{array} {| l | l | } 
\hline \text { Broom } & \text { Docker } \
\hline \$ 0 & \$ 0\\hline 
\end{array}$$ 
B)  $$\begin{array} { |l | l | } 
\hline \text { Broom } & \text { Docker } \
\hline \$ 0 & \$ 50,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} {| l |l | } 
\hline\text { Broom } & \text { Docker } \
\hline \$ 100,000 & \$ 0\\hline
\end{array}$$ 
D)  $$\begin{array} {| l | l | } 
\hline \text { Broom } & \text { Docker } \
\hline \$ 100,000 & \$ 50,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} {| l | l | } 
\hline \text { Broom } & \text { Docker } \
\hline \$ 0 & \$ 0\\hline 
\end{array}$$ 
B)  $$\begin{array} { |l | l | } 
\hline \text { Broom } & \text { Docker } \
\hline \$ 0 & \$ 50,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} {| l |l | } 
\hline\text { Broom } & \text { Docker } \
\hline \$ 100,000 & \$ 0\\hline
\end{array}$$ 
D)  $$\begin{array} {| l | l | } 
\hline \text { Broom } & \text { Docker } \
\hline \$ 100,000 & \$ 50,000 \
\hline
\end{array}$$

Question 3

Which of the following definitions of Sec.338 property classes is not correct?

Accepted Answer

A) Class I: cash,demand deposits,and similar accounts in banks,savings and loan associations,etc. 
B) Class II: actively traded personal property such as publicly traded securities 
C) Class III: covenants not to compete,similar restrictions on trade,etc. 
D) Class IV: inventory or other property held primarily for sale to customers 
A) Class I: cash,demand deposits,and similar accounts in banks,savings and loan associations,etc. 
B) Class II: actively traded personal property such as publicly traded securities 
C) Class III: covenants not to compete,similar restrictions on trade,etc. 
D) Class IV: inventory or other property held primarily for sale to customers

Question 4

Briefly describe A,B,C,D,and G reorganization types.

Accepted Answer

A is a merger or consolidation acquisiti

Question 5

Acquiring Corporation acquires all of the stock of Target Corporation in a Type B (stock-for-stock)reorganization.Both corporations have always filed separate tax returns.Which one of the following statements regarding the acquisition is correct?

Accepted Answer

A) Acquiring and Target Corporations can elect to file a consolidated tax return. 
B) Acquiring and Target Corporations must file a consolidated tax return. 
C) Acquiring Corporation assumes all of the tax attributes of Target Corporation. 
D) Acquiring Corporation must step up or step down the basis of the Target Corporation's assets to their FMV on the acquisition date. 
A) Acquiring and Target Corporations can elect to file a consolidated tax return. 
B) Acquiring and Target Corporations must file a consolidated tax return. 
C) Acquiring Corporation assumes all of the tax attributes of Target Corporation. 
D) Acquiring Corporation must step up or step down the basis of the Target Corporation's assets to their FMV on the acquisition date.

Question 6

Rocky is a party to a tax-free asset-for-stock reorganization.As part of the transaction,Rocky exchanges 100% of the Hope Corporation stock with a $40,000 basis and a $50,000 FMV for Moth Corporation stock worth $40,000 and $10,000 cash.Hope Corporation is subsequently liquidated as part of the reorganization,with Moth receiving the Hope assets and liabilities.Rocky is

Accepted Answer

A) not required to recognize any gain or loss. 
B) required to recognize capital gain or dividend income of $10,000,depending on Hope Corporation's current and accumulated E&P and Rocky's postacquisition interest in Moth Corporation. 
C) required to recognize dividend income of $10,000 if Hope Corporation's current and accumulated E&P is at least $10,000. 
D) able to recognize capital gain income of $10,000 without regard to his post-acquisition interest in Moth Corporation. 
A) not required to recognize any gain or loss. 
B) required to recognize capital gain or dividend income of $10,000,depending on Hope Corporation's current and accumulated E&P and Rocky's postacquisition interest in Moth Corporation. 
C) required to recognize dividend income of $10,000 if Hope Corporation's current and accumulated E&P is at least $10,000. 
D) able to recognize capital gain income of $10,000 without regard to his post-acquisition interest in Moth Corporation.

Question 7

Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year.They purchased an additional 40% on November 20 of this year.The Sec.338 election must be made on or before

Accepted Answer

A) June 30 of this year. 
B) November 30 of this year. 
C) August 15 of next year. 
D) June 30 of next year. 
A) June 30 of this year. 
B) November 30 of this year. 
C) August 15 of next year. 
D) June 30 of next year.

Question 8

Identify which of the following statements is true.

Accepted Answer

A) The control requirement for Sec.355 differs from the control requirement under Sec.351. 
B) Aspect Corporation transfers assets to newly created Expert Corporation in exchange for all of Expert's stock.Shortly after the transfer,Aspect exchanges one-half of the Expert stock that it receives for land.The individuals transferring the land have never been Aspect shareholders.This transaction qualifies as a divisive Type D reorganization and is tax-free to all parties. 
C) Common stock can be exchanged for preferred stock in the same corporation as a Type E reorganization. 
D) All of the above are false. 
A) The control requirement for Sec.355 differs from the control requirement under Sec.351. 
B) Aspect Corporation transfers assets to newly created Expert Corporation in exchange for all of Expert's stock.Shortly after the transfer,Aspect exchanges one-half of the Expert stock that it receives for land.The individuals transferring the land have never been Aspect shareholders.This transaction qualifies as a divisive Type D reorganization and is tax-free to all parties. 
C) Common stock can be exchanged for preferred stock in the same corporation as a Type E reorganization. 
D) All of the above are false.

Question 9

The acquiring corporation does not obtain the target corporation's tax attributes in

Accepted Answer

A) a Type A reorganization. 
B) a Type B reorganization. 
C) an acquisitive Type C reorganization. 
D) an acquisitive Type D reorganization. 
A) a Type A reorganization. 
B) a Type B reorganization. 
C) an acquisitive Type C reorganization. 
D) an acquisitive Type D reorganization.

Question 10

Identify which of the following statements is true.

Accepted Answer

A) Depreciation recapture rules do not override the nonrecognition of gain or loss rules. 
B) The acquisition of liabilities by an acquiring corporation will trigger a gain. 
C) A target corporation will recognize a gain when it distributes stock to its shareholders. 
D) The basis of property acquired in a reorganization is its FMV. 
A) Depreciation recapture rules do not override the nonrecognition of gain or loss rules. 
B) The acquisition of liabilities by an acquiring corporation will trigger a gain. 
C) A target corporation will recognize a gain when it distributes stock to its shareholders. 
D) The basis of property acquired in a reorganization is its FMV.

Question 11

Buddy owns 100 of the outstanding shares of Binder Corporation stock.Buddy's basis in his Binder Corporation stock is $100,000.Binder Corporation is merged with Clipper Corporation in a tax-free reorganization.Buddy receives 50 shares of Clipper stock worth $150,000 and $150,000 cash.The remaining 100 shares of Binder stock were owned by Bruce who received the same consideration for his Binder stock.Binder and Clipper have E&P balances of $250,000 and $500,000,respectively.Buddy and Bruce each own 25% of Clipper Corporation's 200 shares of stock after the reorganization.Which of the following is correct?

Accepted Answer

A) Buddy recognizes $200,000 as dividend income. 
B) Buddy recognizes $200,000 as a capital gain. 
C) Buddy recognizes $150,000 as dividend income. 
D) Buddy recognizes $150,000 as a capital gain. 
A) Buddy recognizes $200,000 as dividend income. 
B) Buddy recognizes $200,000 as a capital gain. 
C) Buddy recognizes $150,000 as dividend income. 
D) Buddy recognizes $150,000 as a capital gain.

Question 12

Identify which of the following statements is true.

Accepted Answer

A) The acquired corporation in a Type C reorganization may retain its corporation charter. 
B) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and $25,000 in cash.Beta is subsequently liquidated.This exchange qualifies as a Type C reorganization. 
C) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and the assumption of $25,000 of Beta liabilities.Beta is subsequently liquidated.This exchange does not qualify as a Type C reorganization. 
D) All of the above are false. 
A) The acquired corporation in a Type C reorganization may retain its corporation charter. 
B) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and $25,000 in cash.Beta is subsequently liquidated.This exchange qualifies as a Type C reorganization. 
C) Alpha Corporation acquires 100% of the assets of Beta Corporation in exchange for $75,000 of Alpha stock and the assumption of $25,000 of Beta liabilities.Beta is subsequently liquidated.This exchange does not qualify as a Type C reorganization. 
D) All of the above are false.

Question 13

The acquiring corporation does not recognize gain or loss in a reorganization where it receives boot.

Accepted Answer

A) True 
 B)False

Question 14

Identify which of the following statements is true.

Accepted Answer

A) Able Corporation (New York)transfers its assets to Able Corporation (Delaware)in exchange for all of its stock.Able Corporation (New York)is liquidated.This exchange is a Type F reorganization. 
B) Strict adherence to legislative guidelines with regard to reorganizations is sufficient for tax-free treatment. 
C) A suitable business purpose for a tax-free reorganization is to permit the minimization of shareholder taxes. 
D) All of the above are false. 
A) Able Corporation (New York)transfers its assets to Able Corporation (Delaware)in exchange for all of its stock.Able Corporation (New York)is liquidated.This exchange is a Type F reorganization. 
B) Strict adherence to legislative guidelines with regard to reorganizations is sufficient for tax-free treatment. 
C) A suitable business purpose for a tax-free reorganization is to permit the minimization of shareholder taxes. 
D) All of the above are false.

Question 15

In a Type B reorganization,the 1.stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent.
2)acquiring corporation must have control of the target corporation immediately after the acquisition.

Accepted Answer

A) Only statement 1 is correct. 
B) Only statement 2 is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement 1 is correct. 
B) Only statement 2 is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 16

In a nontaxable reorganization,shareholders of the target corporation recognize gain or loss.

Accepted Answer

A) True 
 B)False

Question 17

If the FMV of the stock received in a Type E reorganization does not equal the FMV of the stock surrendered,the difference may be

Accepted Answer

A) a contribution to capital. 
B) compensation for services. 
C) a dividend. 
D) All of the above are correct. 
A) a contribution to capital. 
B) compensation for services. 
C) a dividend. 
D) All of the above are correct.

Question 18

Identify which of the following statements is true.

Accepted Answer

A) Acquisition of the stock of a target corporation in a taxable acquisition transaction is reflected in an increased basis for the target corporation's assets on its books. 
B) Acquisition of 100% of the stock of a target corporation in a taxable transaction followed by a tax-free liquidation of the target corporation permits a step-up in the basis of the target corporation's assets to their FMV. 
C) Usually when 100% of the stock of a target corporation is purchased by an acquiring corporation,the basis of the assets of the target corporation reflects the purchase price of the target stock. 
D) All of the above are false. 
A) Acquisition of the stock of a target corporation in a taxable acquisition transaction is reflected in an increased basis for the target corporation's assets on its books. 
B) Acquisition of 100% of the stock of a target corporation in a taxable transaction followed by a tax-free liquidation of the target corporation permits a step-up in the basis of the target corporation's assets to their FMV. 
C) Usually when 100% of the stock of a target corporation is purchased by an acquiring corporation,the basis of the assets of the target corporation reflects the purchase price of the target stock. 
D) All of the above are false.

Question 19

Identify which of the following statements is false.

Accepted Answer

A) A Sec.338 election usually triggers taxation to the target corporation. 
B) A Sec.338 election must be made not later than the fifteenth day of the ninth month following the first stock acquisition in a series of acquisitions that leads to 80% or more stock ownership. 
C) When a Sec.338 election is made,the target corporation is treated as having sold all of its assets at their FMV at the close of the acquisition date. 
D) In a Sec.338 deemed sale election,the shareholders of the target corporation sell their stock to the acquiring corporation. 
A) A Sec.338 election usually triggers taxation to the target corporation. 
B) A Sec.338 election must be made not later than the fifteenth day of the ninth month following the first stock acquisition in a series of acquisitions that leads to 80% or more stock ownership. 
C) When a Sec.338 election is made,the target corporation is treated as having sold all of its assets at their FMV at the close of the acquisition date. 
D) In a Sec.338 deemed sale election,the shareholders of the target corporation sell their stock to the acquiring corporation.

Question 20

Grant Corporation transfers highly appreciated stock to Subsidiary Corporation in exchange for all of its stock.The Subsidiary Corporation stock is distributed to its sole shareholder,Peter.Three weeks after the distribution of the Subsidiary stock,Subsidiary Corporation liquidates.Peter then sells the appreciated stock that he received in the liquidation.This series of transactions

Accepted Answer

A) does not meet the statutory definition of a divisive Type D reorganization. 
B) fails the business purpose requirement. 
C) results in a capital gain to Peter. 
D) None of the above is correct. 
A) does not meet the statutory definition of a divisive Type D reorganization. 
B) fails the business purpose requirement. 
C) results in a capital gain to Peter. 
D) None of the above is correct.

Exam 7: Corporate Acquisitions and Reorganizations

Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

Which of the following definitions of Sec.338 property classes is not correct?

Briefly describe A,B,C,D,and G reorganization types.

Acquiring Corporation acquires all of the stock of Target Corporation in a Type B (stock-for-stock)reorganization.Both corporations have always filed separate tax returns.Which one of the following statements regarding the acquisition is correct?

Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year.They purchased an additional 40% on November 20 of this year.The Sec.338 election must be made on or before

Identify which of the following statements is true.

The acquiring corporation does not obtain the target corporation's tax attributes in

Identify which of the following statements is true.

Identify which of the following statements is true.

The acquiring corporation does not recognize gain or loss in a reorganization where it receives boot.

Identify which of the following statements is true.

In a Type B reorganization,the 1.stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent. 2)acquiring corporation must have control of the target corporation immediately after the acquisition.

In a nontaxable reorganization,shareholders of the target corporation recognize gain or loss.

If the FMV of the stock received in a Type E reorganization does not equal the FMV of the stock surrendered,the difference may be

Identify which of the following statements is true.

Identify which of the following statements is false.

Tax Research

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