Exam 7: Corporate Acquisitions and Reorganizations

Identify which of the following statements is true.

Identify which of the following statements is false.

Rock Corporation acquires all of the assets of Stone Corporation using only its voting stock. Stone Corporation distributes the Rock stock to its shareholders pursuant to its liquidation. After the acquisition, Stone Corporation's shareholders own 20% of the Rock stock (by voting power and value). The transaction is classified as a

Identify which of the following statements is false.

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's basis for her Acme securities is

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

Parent Corporation purchases all of Target Corporation's stock for $200,000 and makes a deemed liquidation election. Target Corporation has Class I assets with an adjusted basis of $55,000 and an FMV of $55,000; Class II assets with an adjusted basis of $40,000 and an FMV of $60,000; and Class V assets with an adjusted basis of $70,000 and an FMV of $100,000. The Class V assets are subject to a $20,000 liability. Assume a 34% corporate tax rate. What is the adjusted grossed- up basis of Target Corporation's stock?

In which of the following reorganizations does the distributing corporation transfer all of its assets to two controlled corporations before the distributing corporation dissolves?

The assets of Bold Corporation have a $1,000,000 basis and a $3,000,000 FMV. Its liabilities are $500,000. Tidel Corporation acquires 80% of the Bold Corporation stock for $2,000,000. What gain is recognized by Bold Corporation if a timely Sec. 338 election is made by Tidel Corporation? What is the total basis of the assets to Bold Corporation following the deemed sale? Assume a 34% corporate tax rate.

In a taxable asset acquisition, the purchaser does not acquire unknown and contingent liabilities.

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

Identify which of the following statements is true.

Midnight Corporation transferred part of its assets to Noon Corporation in exchange for all of Noon's stock. Midnight distributed all of Noon's stock pro rate to Midnight's shareholders. What is this type of reorganization?

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

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

Identify which of the following statements is true.

Acquiring Corporation acquires all of the assets of Target Corporation in exchange for $3,000,000 of Acquiring common stock and the assumption of $2,000,000 of Target's liabilities. The assets had a $2,300,000 adjusted basis to Target. Target's sole shareholder, Paula, had a $1,000,000 adjusted basis for her stock. Target Corporation had $600,000 of E&P on the acquisition date. Paula receives all of the Acquiring common stock in the liquidation of Target. What are the tax consequences of the acquisition to: Acquiring, Target, and Paula?

Brad exchanges 1,000 shares of Goodyear Corporation stock having a $15,000 basis for Atlas Corporation stock having a $25,000 FMV as part of a Type A tax- free reorganization. Brad also receives $6,000 cash as part of the reorganization. How much gain must Brad recognize?

Table Corporation transfers one- half of its assets to Chair Corporation in exchange for 100% of Chair Corporation's single class of stock. Following the exchange, Table Corporation distributes the Chair stock ratably to its shareholders. This transaction will constitute a

Roger transfers assets from his sole proprietorship to his 100%- owned Motor Corporation. Immediately after the incorporation, Motor Corporation transfers all of its assets to Blue Corporation for 10% of Blue's stock. Motor Corporation is liquidated. Which of the following statements is correct?