Exam 7: Corporate Acquisitions and Reorganizations

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?

Identify which of the following statements is true.

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

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?

In a Type B reorganization,the target corporation exchange their stock for the acquiring corporation's voting stock,and the target corporation remains in existence as the acquiring corporation's subsidiary.

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 false.

Identify which of the following statements is true.

In Fall 1999,Ford Motor Company's board of directors announced the $25.8 billion spin-off of its 80.7% interest in the Associated First Capital Corporation finance unit to the Ford shareholders.Ford said that it would distribute about $22.7 billion in Associates shares to its holders of Ford common and Class B stock,and $3.1 billion in cash to shareholders who hold Ford stock in U.S.employee savings accounts.According to market observers who track Ford operations,the spin-off is one of several moves Ford has taken to increase shareholder value by selling off nonautomotive assets,moves that included the initial public offering in April 1999 of Hertz Corporation.Ford said that it will take a one-time,noncash,nontaxable gain of about $16.5 billion in the first quarter as a result of the spin-off.What tax issues should the parties to the divisive transaction consider?

Identify which of the following statements is true.

Identify which of the following statements is true.

A Type C reorganization is a change in identity,legal form,or state of incorporation in which the shareholders retain the same equity interest.

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

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. Assuming that the adjusted grossed-up basis is $237,000 ($200,000 + $20,000 + $17,000 federal income taxes),what is the allocation of adjusted grossed-up basis to Class VI assets?

Identify which of the following statements is true.

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?

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

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?

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

Identify which of the following statements is false.