Question 1

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Accepted Answer

A)  Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of non-capital assets. 
B)  Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates. 
C)  Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value. 
D)  Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value. 
A)  Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of non-capital assets. 
B)  Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates. 
C)  Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value. 
D)  Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value.

Question 2

Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $900 and $200 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed aliability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

A)  $900. 
B)  $1,000. 
C)  $1,100. 
D)  $1,200. 
A)  $900. 
B)  $1,000. 
C)  $1,100. 
D)  $1,200.

Question 3

Simon transferred 100 percent of his stock in Idol Company to Bobcat Corporation in a Type Amerger. In exchange he received stock in Bobcat with a fair market value of $2,000,000 plus$500,000 in cash. Simon's tax basis in the Idol stock was $1,500,000. What amount of gain doesSimon recognize in the exchange and what is his basis in the Bobcat stock he receives?

Accepted Answer

$500,000 gain recognized and a tax basis

Question 4

Which of the following statements best describes the tax benefits that arise from the sale of section 1244 stock?

Accepted Answer

A)  Section 1244 allows an individual shareholder to exempt gain from sale of the stock from tax. 
B)  Section 1244 allows a corporate shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale. 
C)  Section 1244 allows an individual shareholder to deduct all of the loss from sale of the stock as an ordinary loss in the year of the sale. 
D)  Section 1244 allows an individual shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale. 
A)  Section 1244 allows an individual shareholder to exempt gain from sale of the stock from tax. 
B)  Section 1244 allows a corporate shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale. 
C)  Section 1244 allows an individual shareholder to deduct all of the loss from sale of the stock as an ordinary loss in the year of the sale. 
D)  Section 1244 allows an individual shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in the year of the sale.

Question 5

Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the company. In the exchange, Paladin received land with a fair market value of $1,000,000. The corporation's basis in the Furman Company stock was$400,000. The land had a basis to Furman Company of $200,000. What amount of gain does Paladin recognize in the exchange and what is its basis in the land it receives?

Accepted Answer

A)  No gain recognized and a basis in the land of $400,000. 
B)  $600,000 gain recognized and a basis in the land of $400,000. 
C)  No gain recognized and a basis in the land of $200,000. 
D)  $600,000 gain recognized and a basis in the land of $1,000,000. 
A)  No gain recognized and a basis in the land of $400,000. 
B)  $600,000 gain recognized and a basis in the land of $400,000. 
C)  No gain recognized and a basis in the land of $200,000. 
D)  $600,000 gain recognized and a basis in the land of $1,000,000.

Question 6

Harry and Sally formed Empire Corporation on January 2. Harry contributed cash of $500,000 in return for 50 percent of the corporation's stock. Sally contributed a building and land with the following fair market values and adjusted basis in return for 50 percent of the corporation's stock.   To equalize the exchange, Empire Corporation paid Sally $100,000 in addition to her stock.a. What amount of gain or loss does Sally realize on the formation of the corporation?b. What amount of gain or loss, if any, does she recognize?c. What is Sally's tax basis in the stock she receives in return for her contribution of property to the corporation?d. What adjusted basis does Empire Corporation take in the land and building received from Sally?

Accepted Answer

a. $50,000 loss realized
b. $30,000 gain

Question 7

Mandel transferred property to his new corporation in a section 351 transaction. Among the several properties transferred by Mandel was land with a fair market value of$200,000 and a tax basis of $250,000. In all cases, the corporation will always take a tax basis in the land of $200,000 to prevent the "built-in loss" from being transferred from Mandel to the corporation.

Accepted Answer

A) True 
 B)False

Question 8

Gary and Laura decided to liquidate their jointly owned corporation, Amelia, Inc. After liquidating its remaining inventory and paying off its remaining liabilities, Amelia had the following tax accounting balance sheet.   Under the terms of the agreement, Gary will receive the $100,000 cash in exchange for his interest in Amelia. Gary's tax basis in his Amelia stock is $30,000. Laura will receive the building and land in exchange for her interest in Amelia. Laura's tax basis in her Amelia stock is $60,000.What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

Accepted Answer

Laura recognizes gain of $260,000 on the

Question 9

Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases.   The corporation also assumed a mortgage of $60,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $150,000.a. What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b. What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c. What is Francine's basis in the stock she receives in her corporation?

Accepted Answer

a. $20,000
b. Francine does not recogniz

Question 10

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Accepted Answer

A)  Complete liquidations are taxable to all corporate shareholders owning stock of the liquidated corporation representing less than 80 percent or more of voting power and value. 
B)  All complete liquidations are taxable to the shareholders. 
C)  Complete liquidations are tax deferred to corporate shareholders owning stock of the liquidated corporation representing 80 percent or more of voting power and value. 
D)  Complete liquidations are taxable to all individual shareholders. 
A)  Complete liquidations are taxable to all corporate shareholders owning stock of the liquidated corporation representing less than 80 percent or more of voting power and value. 
B)  All complete liquidations are taxable to the shareholders. 
C)  Complete liquidations are tax deferred to corporate shareholders owning stock of the liquidated corporation representing 80 percent or more of voting power and value. 
D)  Complete liquidations are taxable to all individual shareholders.

Question 11

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for stock exchange. In exchange, he received stock in Apricot with a fair market value of $200,000. Julian's tax basis in the Lemon stock was $400,000. Whatamount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

Accepted Answer

A)  $200,000 loss recognized and a basis in Apricot stock of $200,000. 
B)  $200,000 loss recognized and a basis in Apricot stock of $400,000. 
C)  No loss recognized and a basis in Apricot stock of $400,000. 
D)  No loss recognized and a basis in Apricot stock of $200,000. 
A)  $200,000 loss recognized and a basis in Apricot stock of $200,000. 
B)  $200,000 loss recognized and a basis in Apricot stock of $400,000. 
C)  No loss recognized and a basis in Apricot stock of $400,000. 
D)  No loss recognized and a basis in Apricot stock of $200,000.

Question 12

Control as it relates to a section 351 transaction is strictly defined to be 80 percent ormore of the voting power of the stock of the corporation to which property is transferred.

Accepted Answer

A) True 
 B)False

Question 13

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed aliability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

A)  $850. 
B)  $900. 
C)  $750. 
D)  $800. 
A)  $850. 
B)  $900. 
C)  $750. 
D)  $800.

Question 14

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed aliability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

A)  $550. 
B)  $450. 
C)  $600. 
D)  $800. 
A)  $550. 
B)  $450. 
C)  $600. 
D)  $800.

Question 15

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

Accepted Answer

A) True 
 B)False

Question 16

Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $500,000 plus $500,000 in cash. Celeste's tax basis in the Supply Chain stock was $1,200,000. What amount of loss does Celeste recognize in theexchange and what is her basis in the Marketing stock she receives?

Accepted Answer

A)  No loss recognized and a basis in Marketing stock of $700,000. 
B)  No loss recognized and a basis in Marketing stock of $1,200,000. 
C)  $200,000 loss recognized and a basis in Marketing stock of $700,000. 
D)  $200,000 loss recognized and a basis in Marketing stock of $1,200,000. 
A)  No loss recognized and a basis in Marketing stock of $700,000. 
B)  No loss recognized and a basis in Marketing stock of $1,200,000. 
C)  $200,000 loss recognized and a basis in Marketing stock of $700,000. 
D)  $200,000 loss recognized and a basis in Marketing stock of $1,200,000.

Question 17

Packard Corporation transferred its 100 percent interest to State Company as part of a complete liquidation of the company. In the exchange, Packard received land with a fair market value of $300,000. Packard's basis in the State stock was $600,000. The land had a basis to State Company of $500,000. What amount of loss does State recognize in the exchange and what is Packard's basis in the land it receives?

Accepted Answer

A)  $200,000 loss recognized by State and a basis in the land of $300,000 to Packard. 
B)  No loss recognized by State and a basis in the land of $500,000 to Packard. 
C)  No loss recognized by State and a basis in the land of $300,000 to Packard. 
D)  $200,000 loss recognized by State and a basis in the land of $500,000 to Packard. 
A)  $200,000 loss recognized by State and a basis in the land of $300,000 to Packard. 
B)  No loss recognized by State and a basis in the land of $500,000 to Packard. 
C)  No loss recognized by State and a basis in the land of $300,000 to Packard. 
D)  $200,000 loss recognized by State and a basis in the land of $500,000 to Packard.

Question 18

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stockreceived in the exchange?

Accepted Answer

A)  $3,000. 
B)  $5,000. 
C)  $2,000. 
D)  $4,000. 
A)  $3,000. 
B)  $5,000. 
C)  $2,000. 
D)  $4,000.

Question 19

Ken and Jim agree to go into business together selling old comic books and records. According tothe agreement, Ken will contribute inventory valued at $200,000 in return for 80 percent of the stock in the corporation. Ken's tax basis in the inventory is $100,000. Jim will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures). The accounting services are valued at $50,000.Please answer the following questions about the tax consequences of the transaction to Ken. a. What amount of gain or loss does Ken realize on the formation of the corporation?b. What amount of gain or loss, if any, does he recognize?c. What is Ken's tax basis in the stock he receives in return for his contribution of property to the corporation?

Accepted Answer

a. $100,000 gain
b. Ken does not recogni

Question 20

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

Accepted Answer

A)  The continuity of business enterprise principle must be satisfied for only the target corporation. 
B)  The continuity of business enterprise principle must be satisfied for both the acquirer and the target corporation. 
C)  The continuity of business enterprise principle does not have to be satisfied as long as the business purpose principle is satisfied. 
D)  The continuity of business enterprise principle must be satisfied for only the acquirer. 
A)  The continuity of business enterprise principle must be satisfied for only the target corporation. 
B)  The continuity of business enterprise principle must be satisfied for both the acquirer and the target corporation. 
C)  The continuity of business enterprise principle does not have to be satisfied as long as the business purpose principle is satisfied. 
D)  The continuity of business enterprise principle must be satisfied for only the acquirer.

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Which of the following statements best describes the tax benefits that arise from the sale of section 1244 stock?

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Control as it relates to a section 351 transaction is strictly defined to be 80 percent ormore of the voting power of the stock of the corporation to which property is transferred.

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 19: Corporate Formation, Reorganization, and Liquidation

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Which of the following statements best describes the tax benefits that arise from the sale of section 1244 stock?

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Control as it relates to a section 351 transaction is strictly defined to be 80 percent ormore of the voting power of the stock of the corporation to which property is transferred.

The shareholders in the target corporation always receive a tax basis in the stock received from the acquirer equal to the stock's fair market value.

Which of the following statements best describes the application of the continuity of enterprise principle to a Type A tax-deferred reorganization?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters