Exam 7: Corporate Acquisitions and Reorganizations

Marty is a party to a tax-free reorganization.He has a basis of $22,000 in his Van Corporation stock that has an FMV of $35,000.Marty exchanges the Van stock for Young Corporation stock worth $29,000 and Young securities with a face amount of $7,000 and an FMV of $6,000.What is Marty's basis in the Young securities?

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

Identify which of the following statements is false.

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 Frank's basis in the Duke stock he receives?

Identify which of the following statements is true.

Briefly describe A,B,C,D,and G reorganization types.

The acquiring corporation does not obtain the target corporation's tax attributes in

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?

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

Roger transfers assets from his sole proprietorship to his 100%-owned Motor Corporation.Immediately after the incorporation,Motor Corporation transfers all of its assets to Blue Corporation for 10% of Blue's stock.Motor Corporation is liquidated.Which of the following statements is correct?

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 must recognize a gain of

Table Corporation transfers one-half of its assets to Chair Corporation in exchange for 100% of Chair Corporation's single class of stock.Following the exchange,Table Corporation distributes the Chair stock ratably to its shareholders.This transaction will constitute a

Brad exchanges 1,000 shares of Goodyear Corporation stock having a $15,000 basis for Atlas Corporation stock having a $25,000 FMV as part of a Type A tax-free reorganization.Brad also receives $6,000 cash as part of the reorganization.How much gain must Brad recognize?

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?

Johnson Co.transferred part of its assets to Alive Corporation in exchange for all of Alive's stock.The Alive stock received for the assets was distributed to the Johnson shareholders.What tax issues should the parties to the divisive reorganization consider?

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?

Identify which of the following statements is false.

In a Type B reorganization,the acquiring corporation obtains substantially all of the target corporation's assets in exchange for its voting stock and a limited amount of other consideration.

Identify which of the following statements is true.

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?