Exam 7: Corporations: Reorganizations

A unique characteristic of a "Type G" reorganization is that the liabilities of the target corporation are liquidated and not assumed by the acquiring corporation.

The "Type G" reorganization was created by ____________________ legislation.

Which of the following is false regarding a "Type A" reorganization?

Which of the following statements regarding "Type B" reorganizations is true?

Tree Corporation and Branch Corporation would like to merge.Tree has a net value of $700,000 and Branch's net value is $300,000.They were considering creating a new corporation called TreeBranch but Branch has valuable patents that cannot be transferred.Therefore,Tree will transfer all of its assets to Branch in exchange for 70% of its stock.Tree will then liquidate by exchanging the Branch stock with its shareholders for their stock in Tree.Which,if any,of the following statements is correct?

For a corporate restructuring to qualify as a tax-free reorganization,the transaction must comply with the step transaction doctrine.

What type of reorganization is affected in each of the following independent transactions? a. "A" reorganization, merger b. "A" reorganization, consolidation c. "B" reorganization d. "C" reorganization e. Acquisitive "D" reorganization f. "D" reorganization, spin-off g. "D" reorganization, split-off h. "D" reorganization, split-up i. "E" reorganization j. "F" reorganization k. "G" reorganization l. Taxable transaction -Flower Corporation has been in existence for 20 years and has always been owned by Iris and Lilly.They each also own $50,000 of Flower's bonds.All of Lilly's bonds are called in and exchanged for $50,000 of preferred stock.Iris does not participation in the transaction.

All of the following statements are true about gains recognized in a corporate reorganization except:

Match the following items with the statements below. Terms may be used more than once. a.Capital gain b.Continuity of business enterprise c.Continuity of interest d.Dividend e.Equity change f.Liability assumption g.Ordinary gain h.Ownership change i.Not recognized j.Sound business purpose k.Step transaction -The face amount of the bond received in a qualified reorganization is greater than the face amount of the bond exchanged.

Currently,spin-offs of unwanted divisions are popular merger and acquisition strategies.

Kiwi Corporation would like to acquire Lemon Corporation on October 31 in a tax-free reorganization.While Kiwi is not interested in Lemon's line of business,Kiwi finds Lemon particularly appealing because Lemon has a $600,000 NOL and $20,000 capital loss carryover.Kiwi is a very profitable corporation and is also expecting to have at least $500,000 of capital gains for the current year.At the time of the restructuring,Lemon has assets valued at $3 million (basis of $3.3 million)and Kiwi could use most of these assets in its business.However,Kiwi would rather sell the assets,recognize the loss to offset its expected gains,and then use the proceeds to purchase new equipment.Kiwi is proposing exchanging 25% of its stock for all of Lemon's assets.The long-term tax-exempt rate is currently 6%,and Kiwi's discount factor for making investment decisions is 10%. a.Discuss the proposed restructuring and what steps should be taken to maximize Kiwi's benefits from the reorganization. b.What is the amount of Lemon's carryover loss that Kiwi may take in the current year assuming it meets all other tax law requirements? What are its loss carryovers to next year?

The end results of a "Type C" reorganization are very similar to a "Type A" merger,but all liabilities of the target need not be assumed in a "Type C" reorganization.

Gravity Corporation creates Earth Corporation.It transfers most of its assets (net value $900,000)to Earth.At approximately the same time,Magnet Corporation also transfers all of its assets (net value $90,000)to Earth.Gravity liquidates by transferring its remaining assets,$100,000 cash and 1,000 shares of Earth,to its sole shareholder,Zia,in exchange for all of her Gravity stock.Zia's basis in her Gravity stock was $300,000.Magnet liquidates by transferring 100 shares of Earth to its sole shareholder,Amos,in exchange for all of his Magnet stock.Amos's basis in his Magnet stock was $150,000.How will this transaction be treated for tax purposes?

An ____________________ shift occurs when a tax-free reorganization causes an _________________ shift,which is any change in the common stock ownership of shareholders owning at least 5%.The ____________________ takes place when either of these two shifts occurs.

Which of the following is not a possible outcome for a shareholder who is a party to a corporate reorganization falling under § 368?

The "Type E" reorganizations is a ____________________; a major change in the character and amount of outstanding ____________________,____________________ or ____________________ of a corporation.

The amount of recognized gain cannot exceed the amount of realized gain.

Roberto acquired 80% of Tico's stock four years ago for $475,000.Bonita,who purchased her shares eight years ago for $80,000,owns the other 20%.In the current year,Atco Corporation (fair market value of $4.5 million)wants to acquire all of Tico,because Tico has a profitable new product line and Atco has NOLs it needs to use before they expire.Tico has assets with a fair market value of $800,000,adjusted basis of $400,000,and liabilities of $175,000.Since consumers associate the Tico name with value and quality,Atco does not want to lose the Tico name in the acquisition.Bonita does not want to participate in the reorganization and requests that she receive cash instead of stock.Determine the type of reorganization Atco and Tico should use for the restructuring.What is the gain or loss recognized by Tico,Roberto,and Bonita on the transaction?

Wall Corporation has assets with a $150,000 basis,$350,000 value,and $50,000 of liabilities.Wall transfers $330,000 of its assets and all of its liabilities to Floor Corporation in exchange for $280,000 of Floor common stock.Wall distributes the Floor stock and its remaining $20,000 cash to Carmen,Wall's sole shareholder,in exchange for all of her Wall stock.Carmen purchased the Wall stock 5 years ago for $290,000.Finally,Wall liquidates.Which,if any,of the following statements is correct?

Corporate reorganizations are tax-free to debt security holders to the extent that they receive securities that have a principal amount ____________________ the amount of security surrendered.A security generally must have a term greater than ____________________ years.