Question 1

Identify which of the following statements is true.

Accepted Answer

A) A Type B reorganization must be accomplished in one transaction. 
B) "Creeping acquisitions" are not allowed in a Type B reorganization. 
C) Boxer Corporation acquires 81% of Excel Corporation's stock in a Type B reorganization.When Boxer Corporation acquires an additional 11% of Excel Corporation's stock two years later in exchange for Boxer stock,the second acquisition is also treated as a Type B reorganization. 
D) All of the above are false. 
A) A Type B reorganization must be accomplished in one transaction. 
B) "Creeping acquisitions" are not allowed in a Type B reorganization. 
C) Boxer Corporation acquires 81% of Excel Corporation's stock in a Type B reorganization.When Boxer Corporation acquires an additional 11% of Excel Corporation's stock two years later in exchange for Boxer stock,the second acquisition is also treated as a Type B reorganization. 
D) All of the above are false.

Question 2

What are the advantages and disadvantages of a Type C reorganization?

Accepted Answer

See C:7-27

Question 3

Bob exchanges 4,000 shares of Beetle Corporation stock that he had purchased for $800,000 for 6,000 shares of Butterfly Corporation common stock with a fair market value of $1,000,000.What is Bob's recognized gain on the exchange and his basis in the Butterfly stock?

Accepted Answer

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

Question 4

Paper Corporation adopts a plan of reorganization and exchanges 1,000 shares of its voting stock and $50,000 in cash for Chase Corporation's assets having a $200,000 adjusted basis and a $275,000 FMV.Chase Corporation is subsequently liquidated.What is Paper Corporation's basis in the assets acquired in the exchange?

Accepted Answer

A) $200,000 
B) $250,000 
C) $275,000 
D) $50,000 
A) $200,000 
B) $250,000 
C) $275,000 
D) $50,000

Question 5

Paris Corporation has E&P of $200,000.Paris owns all of Slider Corporation's stock,which is worth $80,000.The stock has been held for five years.Paris distributes all of the Slider stock and $20,000 cash to a 50% shareholder in exchange for all of the shareholder's 100 shares of Paris stock.The exchange qualifies as a Sec.355 split-off transaction.The 50% shareholder's basis in the Paris stock surrendered is $90,000.What is the amount of the gain that the 50% shareholder must recognize?

Accepted Answer

@#IMG-DLM& 
The recognized gain is taxed as a capi

Question 6

Identify which of the following statements is true.

Accepted Answer

A) A plan of reorganization must be a written document. 
B) Advance rulings are required for all reorganizations. 
C) The IRS will issue an advance ruling on any proposed tax-free reorganization. 
D) All of the above are false. 
A) A plan of reorganization must be a written document. 
B) Advance rulings are required for all reorganizations. 
C) The IRS will issue an advance ruling on any proposed tax-free reorganization. 
D) All of the above are false.

Question 7

Identify which of the following statements is true.

Accepted Answer

A) A split-off Type D reorganization occurs when part of the assets of one corporation are transferred to a controlled corporation in exchange for its stock,and shares of the controlled corporation's stock are distributed to all of the distributing corporation's shareholders without having them surrender any of their stock in the distributing corporation. 
B) In a Type D reorganization,the existence of a good corporate business purpose is necessary before the stock of a controlled subsidiary can be distributed to the shareholders of the distributing corporation. 
C) A distribution of a controlled corporation's stock can be a tax-free Type D reorganization,even if none of the distributing corporation's assets are transferred to the controlled corporation. 
D) All of the above are false. 
A) A split-off Type D reorganization occurs when part of the assets of one corporation are transferred to a controlled corporation in exchange for its stock,and shares of the controlled corporation's stock are distributed to all of the distributing corporation's shareholders without having them surrender any of their stock in the distributing corporation. 
B) In a Type D reorganization,the existence of a good corporate business purpose is necessary before the stock of a controlled subsidiary can be distributed to the shareholders of the distributing corporation. 
C) A distribution of a controlled corporation's stock can be a tax-free Type D reorganization,even if none of the distributing corporation's assets are transferred to the controlled corporation. 
D) All of the above are false.

Question 8

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?

Accepted Answer

ADSP = [$200,000 + $

Question 9

Define the seven classes of assets used in allocating basis when using the residual method.

Accepted Answer

The residual method requires the adjuste

Question 10

Roby Corporation,a Tennessee corporation,decides to change its state of incorporation to Delaware to take advantage of its more favorable state corporation laws.Roby Corporation can take advantage of the Type F reorganization rules by

Accepted Answer

A) exchanging the Tennessee corporation's assets for the Delaware corporation's stock and liquidating the Tennessee corporation. 
B) liquidating the Tennessee corporation and reincorporating in Delaware. 
C) merging the Tennessee corporation stock into an existing Delaware corporation. 
D) recapitalizing the Tennessee corporation. 
A) exchanging the Tennessee corporation's assets for the Delaware corporation's stock and liquidating the Tennessee corporation. 
B) liquidating the Tennessee corporation and reincorporating in Delaware. 
C) merging the Tennessee corporation stock into an existing Delaware corporation. 
D) recapitalizing the Tennessee corporation.

Question 11

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?

Accepted Answer

The following tax issues should be consi

Question 12

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 13

Identify which of the following statements is true.

Accepted Answer

A) The total basis of the target corporation's assets following a Sec.338 election in general equals the amount paid for the target corporation's stock minus the target corporation's liabilities. 
B) The residual method ensures that any premium paid for the target stock is reflected in depreciable assets. 
C) The allocation of the total basis of the target corporation's assets to the individual assets following a Sec.338 election occurs under the residual method. 
D) All of the above are false. 
A) The total basis of the target corporation's assets following a Sec.338 election in general equals the amount paid for the target corporation's stock minus the target corporation's liabilities. 
B) The residual method ensures that any premium paid for the target stock is reflected in depreciable assets. 
C) The allocation of the total basis of the target corporation's assets to the individual assets following a Sec.338 election occurs under the residual method. 
D) All of the above are false.

Question 14

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

Accepted Answer

A) 0) 
B) $200,000. 
C) $350,000. 
D) $400,000. 
A) 0) 
B) $200,000. 
C) $350,000. 
D) $400,000.

Question 15

As part of a plan of corporate reorganization,Sally exchanged 1,000 shares of Tone Corporation common stock that she had purchased for $85,000,for 3,000 shares of Fade Corporation voting common stock having an $87,000 FMV.What is the amount and character of Sally's recognized gain and her basis in the Tone stock as a result of the exchange?

Accepted Answer

Her realized gain is $2,000 ($87,000 - $

Question 16

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 17

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 18

Identify which of the following statements is true.

Accepted Answer

A) The target corporation in a tax-free reorganization generally recognizes no gain or loss when boot property is received in exchange for assets because such property is usually distributed to its shareholders and creditors when the target corporation is liquidated. 
B) In tax-free reorganizations,one transaction cannot qualify for more than one type of tax-free reorganization. 
C) The Sec.1245 recapture rules override the nonrecognition of gain or loss rules for an asset-for-stock tax-free reorganization. 
D) All of the above are false. 
A) The target corporation in a tax-free reorganization generally recognizes no gain or loss when boot property is received in exchange for assets because such property is usually distributed to its shareholders and creditors when the target corporation is liquidated. 
B) In tax-free reorganizations,one transaction cannot qualify for more than one type of tax-free reorganization. 
C) The Sec.1245 recapture rules override the nonrecognition of gain or loss rules for an asset-for-stock tax-free reorganization. 
D) All of the above are false.

Question 19

WorldCom created an acquisitions subsidiary (TC Investments Corporation)by transferring WorldCom stock and cash to TC Investments Corporation in exchange for newly issued TC Investments Corporation stock.TC Investments Corporation then used the WorldCom stock and cash to acquire MCI as described in the next two steps.

Accepted Answer

The input question describes a series of

Question 20

TC Investments Corporation used cash to purchase all the outstanding MCI Class A common stock from British Telecommunications (BT)for $51 per share.BT had acquired the MCI Class A common stock two years earlier in a failed merger attempt involving BT and MCI.In addition,TC Investments Corporation used WorldCom stock to acquire all outstanding shares of regular MCI common stock from other MCI shareholders.In this exchange,MCI shareholders received 1.2439 shares of WorldCom stock for each share of regular MCI common stock surrendered.TC Investments Corporation paid cash in lieu of issuing fractional WorldCom shares to MCI shareholders who were entitled to such fractional shares.More than 50% of the consideration used to acquire MCI was composed of WorldCom stock.

Accepted Answer

TC Investments Corporation used cash to

Exam 7: Corporate Acquisitions and Reorganizations

Identify which of the following statements is true.

What are the advantages and disadvantages of a Type C reorganization?

Bob exchanges 4,000 shares of Beetle Corporation stock that he had purchased for $800,000 for 6,000 shares of Butterfly Corporation common stock with a fair market value of $1,000,000.What is Bob's recognized gain on the exchange and his basis in the Butterfly stock?

Identify which of the following statements is true.

Identify which of the following statements is true.

Define the seven classes of assets used in allocating basis when using the residual method.

Roby Corporation,a Tennessee corporation,decides to change its state of incorporation to Delaware to take advantage of its more favorable state corporation laws.Roby Corporation can take advantage of the Type F reorganization rules by

Identify which of the following statements is true.

Identify which of the following statements is true.

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?

Identify which of the following statements is true.

Identify which of the following statements is true.

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