Exam 7: Corporate Acquisitions and Reorganizations

Identify which of the following statements is false.

Identify which of the following statements is true.

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?

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

Shareholders in Boxer Corporation exchange all of their nonvoting Class B common stock for additional shares of Boxer's Class A common stock. Which of the following statements is correct?

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

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

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?

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

Carol owns Target Corporation stock having an adjusted basis of $41,000. As part of a Type C tax- free reorganization involving Revbo and Target Corporations, Carol exchanges her Target stock for $42,000 of Revbo stock and Revbo securities having a face amount and FMV of $8,000. What is Carol's basis in the Revbo stock?

Town Corporation acquires all of the stock of Country Corporation in June in exchange for Town voting common stock. Both Town and Country use a calendar year as their tax year. In the following January, Country pays all of its liabilities and distributes its remaining assets to Town pursuant to its liquidation. These assets consist of $50,000 in cash and land having a $30,000 FMV and a $10,000 basis to Country. Upon distribution of Country's assets to Town, all of Country's capital stock is canceled. Town's basis for the Country stock prior to the liquidation was $57,000. What is the amount and character of Town's recognized gain on receipt of Country's assets pursuant to the liquidation?

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

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

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?

Florida Corporation is 100% owned by Lawton Chiles. Georgia Corporation is 100% owned by Zell Miller. Georgia Corporation acquires on December 31 of the previous year all of Florida Corporation's stock for $5,000,000 in a cash purchase transaction. Both corporations use the calendar year as their tax year. At the time of the acquisition, Florida Corporation had a $500,000 NOL. During the current year, the two corporations file separate tax returns and Florida Corporation reports $700,000 of taxable income. The long- term tax- exempt rate for the period, including the acquisition date is 6%. What is Florida Corporation's taxable income for the current year?

Discuss the advantages and disadvantages of a tax- free reorganization as compared with a taxable transaction.

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

Tax attributes of the target corporation are lost when a Sec. 338 deemed liquidation election is made.

John Van Kirk owns all the stock of Monmouth Restaurant Corporation in Pittsburgh. John would like to sell his business and retire to sunny Florida now that he has turned 65. Pam, a long- time bartender at Monmouth Restaurant, offers to purchase all the business's noncash assets in exchange for a 25% down payment, with the remaining 75% being paid in five equal annual installments. Interest will be charged at a 10% rate on the unpaid installments. John plans to liquidate the corporation that has operated the restaurant and have Monmouth Restaurant distribute the installment notes and any remaining assets. What tax issues should Monmouth Restaurant, John, and Pam consider with respect to the purchase transaction?