Exam 7: Corporate Acquisitions and Reorganizations

Dreyer Corporation purchased 5% of Willy Corporation's stock five years ago for $100,000.Dreyer then decides to purchase an additional 80% of the Willy stock for $1,000,000 on April 15 of the current year.On the acquisition date,Willy Corporation's liabilities are $150,000.A $300,000 tax liability is incurred by Willy on the Sec.338 deemed sale.What is the total basis of Willy Corporation's assets for Sec.338 basis allocation purposes?

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?

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

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?

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

Pacific Corporation acquires 80% of the stock of Jackson Corporation for $3,000,000 in the current year.Jackson's assets have a basis of $2,000,000 and its liabilities are $800,000.The assets are worth $3,500,000.What gain is recognized by Jackson Corporation on the deemed sale of its assets if a Sec.338 election is made?

Identify which of the following statements is true.

Town Corporation acquires all of the stock of Country Corporation in June in exchange for Town voting common stock.Both Town and Country use a calendar year as their tax year.In the following January,Country pays all of its liabilities and distributes its remaining assets to Town pursuant to its liquidation.These assets consist of $50,000 in cash and land having a $30,000 FMV and a $10,000 basis to Country.Upon distribution of Country's assets to Town,all of Country's capital stock is canceled.Town's basis for the Country stock prior to the liquidation was $57,000.What is the amount and character of Town's recognized gain on receipt of Country's assets pursuant to the liquidation?

In a triangular Type A merger,the acquiring subsidiary corporation must obtain substantially all of the target corporation's assets.

Identify which of the following statements is true.

In a nontaxable reorganization,the holding period for the stock received by the target shareholders includes the holding period of the stock surrendered.

Identify which of the following statements is true.

After the stock acquisition,MCI transferred its assets to TC Investments Corporation in a liquidation transaction,after which TC Investments Corporation held MCI assets instead of MCI stock.TC Investments Corporation then changed its name to MCI Communications Corporation,and WorldCom changed its name to MCI WorldCom. After these three steps,MCI Communications Corporation,which held the acquired MCI assets,ended up as a subsidiary of MCI WorldCom.Total assets of MCI WorldCom after the merger were $86 billion,including the stock of its subsidiary,MCI Communications Corporation. On December 31,1997,prior to the acquisition,MCI had $576 million of U.S.NOL carryovers and $179 million of minimum tax credit carryovers.MCI WorldCom incurred expenses of $127 million in connection with the acquisition.MCI WorldCom recorded the transaction as a purchase for financial accounting purposes with the excess of cost over FMV being recorded as a combination of goodwill,in-process R&D costs,and other intangible assets.In addition,MCI WorldCom incurred $21 million in employee severance pay outlays.MCI stock options were converted into MCI WorldCom stock options.What type of reorganization did WorldCom and MCI engage in? What tax issues should the parties to the reorganization (MCI,BT,TC Investments Corporation,WorldCom,and the MCI and WorldCom shareholders)consider when evaluating the acquisition?

Bob exchanges 4000 shares of Beetle Corporation stock that he had purchased for $800,000 for 6000 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.

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.What is Barbara's basis for her Acme stock?

Grand Corporation transfers 40% of its assets having an adjusted basis of $600,000 and an FMV of $800,000 to New Corporation in exchange for 75% of its single class of stock.Grand Corporation is owned equally by Annie and Betsy who are unrelated.Annie's basis for her Grand stock is $300,000 and Betsy's basis is $400,000.Annie exchanges all of her Grand stock for all of the New stock received in the exchange.Which of the following statements is correct concerning these transactions?

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?

Which of the following definitions of Sec.338 property classes is not correct?

Identify which of the following statements is true.