Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

Identify which of the following statements is false.

Accepted Answer

A) When determining the use of an NOL carryover following a change of ownership,the old loss corporation and the new loss corporation may be the same for Sec.382 purposes. 
B) A new loss corporation that does not continue the business enterprise of the old loss corporation during the two-year period beginning on the date of the stock ownership change cannot use the net operating loss carryover. 
C) One advantage of a tax-free reorganization is that losses realized as part of a tax-free reorganization are not recognized. 
D) For purposes of Sec.382,ownership changes are tested any time a 5% shareholder has a stock transaction affecting his ownership. 
A) When determining the use of an NOL carryover following a change of ownership,the old loss corporation and the new loss corporation may be the same for Sec.382 purposes. 
B) A new loss corporation that does not continue the business enterprise of the old loss corporation during the two-year period beginning on the date of the stock ownership change cannot use the net operating loss carryover. 
C) One advantage of a tax-free reorganization is that losses realized as part of a tax-free reorganization are not recognized. 
D) For purposes of Sec.382,ownership changes are tested any time a 5% shareholder has a stock transaction affecting his ownership. C

Question 3

In a Sec.338 election,the target corporation

Accepted Answer

A) will have a holding period for assets beginning on the day after the acquisition date. 
B) must use the preacquisition tax year. 
C) will no longer file a separate return. 
D) is considered to be a continuation of the old target corporation for purposes of the tax attribute carryover rules. 
A) will have a holding period for assets beginning on the day after the acquisition date. 
B) must use the preacquisition tax year. 
C) will no longer file a separate return. 
D) is considered to be a continuation of the old target corporation for purposes of the tax attribute carryover rules. A

Question 4

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 5

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

Accepted Answer

A) Type A reorganization. 
B) Type B reorganization. 
C) Type C reorganization. 
D) The transaction does not qualify as a tax-free reorganization. 
A) Type A reorganization. 
B) Type B reorganization. 
C) Type C reorganization. 
D) The transaction does not qualify as a tax-free reorganization.

Question 6

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 7

Identify which of the following statements is false.

Accepted Answer

A) The acquiring corporation does not recognize gains or losses under Sec.1001 when it transfers noncash boot property to the target corporation or its shareholders. 
B) Gain recognized by a shareholder in a tax-free reorganization may be characterized as a dividend. 
C) If no gain or loss is recognized by a stock or security holder in a tax-free reorganization,the stock or securities received take a substituted basis equal to the basis of the shares or securities surrendered. 
D) Tax-free reorganizations generally do not involve actual redemptions of the stock of the target corporation's shareholders. 
A) The acquiring corporation does not recognize gains or losses under Sec.1001 when it transfers noncash boot property to the target corporation or its shareholders. 
B) Gain recognized by a shareholder in a tax-free reorganization may be characterized as a dividend. 
C) If no gain or loss is recognized by a stock or security holder in a tax-free reorganization,the stock or securities received take a substituted basis equal to the basis of the shares or securities surrendered. 
D) Tax-free reorganizations generally do not involve actual redemptions of the stock of the target corporation's shareholders.

Question 8

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 9

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

Accepted Answer

A number of advantages and disadvantages

Question 10

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

Accepted Answer

A) split-off 
B) spin-off 
C) split-up 
D) Type C reorganization 
A) split-off 
B) spin-off 
C) split-up 
D) Type C reorganization

Question 11

Identify which of the following statements is false.

Accepted Answer

A) Taxable acquisition transactions can either be a purchase of assets or a purchase of stock. 
B) The tax-free reorganization rules are an example of the wherewithal to pay concept. 
C) A taxable acquisition of a target corporation's assets results in the nonrecognition of gain or loss on the disposition of each individual asset. 
D) Sales of depreciable assets as part of a taxable acquisition result in depreciation recapture. 
A) Taxable acquisition transactions can either be a purchase of assets or a purchase of stock. 
B) The tax-free reorganization rules are an example of the wherewithal to pay concept. 
C) A taxable acquisition of a target corporation's assets results in the nonrecognition of gain or loss on the disposition of each individual asset. 
D) Sales of depreciable assets as part of a taxable acquisition result in depreciation recapture.

Question 12

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?

Accepted Answer

The Sec.382 loss limitation is $300,000

Question 13

Baxter Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $500,000 to Duke Corporation for 90% of Duke's single class of stock worth $500,000.The Duke stock is then exchanged for Frank's 50% interest in Baxter Corporation.Frank's basis in the Baxter stock he surrenders is $120,000.What is Duke Corporation's basis in the assets it receives?

Accepted Answer

Duke has a

Question 14

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.

Question 15

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

Accepted Answer

A) $800,000. 
B) $600,000. 
C) $500,000. 
D) $300,000. 
A) $800,000. 
B) $600,000. 
C) $500,000. 
D) $300,000.

Question 16

Identify which of the following statements is false.

Accepted Answer

A) In a Type C reorganization,the acquired corporation must distribute stock,securities,and other property it receives to its shareholders. 
B) A Type C reorganization is less flexible than a Type A reorganization because of the solely-for-voting stock requirement of a Type C. 
C) To qualify as a Type C reorganization,the target corporation must be formally dissolved. 
D) In a Type C reorganization,shareholders of the acquiring corporation generally do not have to approve the acquisition. 
A) In a Type C reorganization,the acquired corporation must distribute stock,securities,and other property it receives to its shareholders. 
B) A Type C reorganization is less flexible than a Type A reorganization because of the solely-for-voting stock requirement of a Type C. 
C) To qualify as a Type C reorganization,the target corporation must be formally dissolved. 
D) In a Type C reorganization,shareholders of the acquiring corporation generally do not have to approve the acquisition.

Question 17

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)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 18

Acquiring Corporation acquires at the close of business on June 30 (of a nonleap year)all of the stock of Target Corporation as part of a merger transaction.Target Corporation is liquidated into Acquiring Corporation on the same day as part of the merger.Acquiring obtains assets having a $600,000 FMV and a $275,000 adjusted basis,along with a $100,000 net operating loss.Acquiring Corporation reports taxable income of $146,000 for the year.What amount of Target Corporation's NOL can be used to offset Acquiring Corporation's taxable income? (Assume all months have 30 days and ignore the Sec.382 limitation rules. )

Accepted Answer

The lesser of Target's NOL carryover ($1

Question 19

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 20

Identify which of the following statements is true.

Accepted Answer

A) A tax-free spin-off coming under Sec.355 occurs when a parent corporation distributes stock in a controlled subsidiary corporation in exchange for some of its own stock. 
B) Tax-free split-offs and spin-offs coming under Sec.355 require the surrender of shareholder stock. 
C) When boot is received in a Sec.355 spin-off transaction,the FMV of the boot will be a dividend to the extent of the shareholder's ratable share of the distributing corporation's E&P. 
D) All of the above are false. 
A) A tax-free spin-off coming under Sec.355 occurs when a parent corporation distributes stock in a controlled subsidiary corporation in exchange for some of its own stock. 
B) Tax-free split-offs and spin-offs coming under Sec.355 require the surrender of shareholder stock. 
C) When boot is received in a Sec.355 spin-off transaction,the FMV of the boot will be a dividend to the extent of the shareholder's ratable share of the distributing corporation's E&P. 
D) All of the above are false.

Exam 7: Corporate Acquisitions and Reorganizations

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

Identify which of the following statements is false.

In a Sec.338 election,the target corporation

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.

Identify which of the following statements is false.

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

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

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

Identify which of the following statements is false.

Identify which of the following statements is false.

Identify which of the following statements is true.

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