Question 1

Carol owns Target Corporation stock having an adjusted basis of $41,000.As part of a Type C tax-free reorganization involving Revbo and Target Corporations,Carol exchanges her Target stock for $42,000 of Revbo stock and Revbo securities having a face amount and FMV of $8,000.What is Carol's basis in the Revbo stock?

Accepted Answer

The answer of Carol owns Target Corporation stock having an...

Question 2

Rock Corporation acquires all of the assets of Stone Corporation using only its voting stock.Stone Corporation distributes the Rock stock to its shareholders pursuant to its liquidation.After the acquisition,Stone Corporation's shareholders own 20% of the Rock stock (by voting power and value).The transaction is classified as a

Accepted Answer

A) Type B reorganization. 
B) Type C reorganization. 
C) Type D reorganization. 
D) The transaction does not qualify as a tax-free reorganization.

Question 3

Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year.They purchased an additional 40% on November 20 of this year.The Sec.338 election must be made on or before

Accepted Answer

A) June 30 of this year. 
B) November 30 of this year. 
C) August 15 of next year. 
D) June 30 of next year.

Question 4

Identify which of the following statements is false.

Accepted Answer

A) A Sec.338 election usually triggers taxation to the target corporation. 
B) A Sec.338 election must be made not later than the fifteenth day of the ninth month following the first stock acquisition in a series of acquisitions that leads to 80% or more stock ownership. 
C) When a Sec.338 election is made,the target corporation is treated as having sold all of its assets at their FMV at the close of the acquisition date. 
D) In a Sec.338 deemed sale election,the shareholders of the target corporation sell their stock to the acquiring corporation.

Question 5

Zebra Corporation transfers assets with a $120,000 basis and a $250,000 FMV to Hat Corporation for common stock worth $200,000 and cash of $50,000.The exchange qualifies as a tax-free reorganization.Zebra Corporation distributes the stock and cash to its shareholders pursuant to its liquidation.How much gain must Zebra Corporation recognize?

Accepted Answer

The answer of Zebra Corporation transfers assets with a $120,000...

Question 6

On July 1,in connection with a recapitalization of Yorktown Corporation,Robert Moore exchanges 1,000 shares of Yorktown preferred stock,which cost him $95,000,for 1,000 shares of Yorktown common stock worth $108,000 and bonds having a principal amount of $10,000 and an FMV of $10,500.What is the amount of Moore's realized and recognized gain?

Accepted Answer

The answer of On July 1,in connection with a recapitalization...

Question 7

Broom Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $400,000 to Docker Corporation in exchange for $400,000 of Docker Corporation stock as part of a tax-free reorganization.The Docker stock had been purchased from its shareholders one year earlier for $350,000.How much gain do Broom and Docker Corporations recognize on the asset transfer?

Accepted Answer

A)   
B)   
C)   
D)

Question 8

In a nontaxable reorganization,the acquiring corporation has a holding period for the acquired assets that begins on the day after the transaction date.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) not required to recognize any gain or loss. 
B) required to recognize capital gain or dividend income of $10,000,depending on Hope Corporation's current and accumulated E&P and Rocky's postacquisition interest in Moth Corporation. 
C) required to recognize dividend income of $10,000 if Hope Corporation's current and accumulated E&P is at least $10,000. 
D) able to recognize capital gain income of $10,000 without regard to his post-acquisition interest in Moth Corporation.

Question 10

Identify which of the following statements is false.

Accepted Answer

A) In a Type C reorganization,the acquired corporation must distribute stock,securities,and other property it receives to its shareholders. 
B) A Type C reorganization is less flexible than a Type A reorganization because of the solely-for-voting stock requirement of a Type C. 
C) To qualify as a Type C reorganization,the target corporation must be formally dissolved. 
D) In a Type C reorganization,shareholders of the acquiring corporation generally do not have to approve the acquisition.

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

Why would an acquiring corporation want an acquisition to be tax-free if it gets only a substituted basis rather than a step-up basis for the acquired assets?

Accepted Answer

The answer of Why would an acquiring corporation want an...

Question 14

American Corporation acquires the noncash assets of Utech Corporation in exchange for $700,000 of its voting stock plus $50,000 of cash.Utech Corporation assets are worth $750,000.Utech Corporation does not distribute the stock and cash but instead holds the stock as an investment.Utech will use the American cash along with the cash it retained to start a new business.The transaction can be classified as a

Accepted Answer

A) Type A reorganization. 
B) Type B reorganization. 
C) Type C reorganization. 
D) The transaction does not qualify as a tax-free reorganization.

Question 15

Advance rulings are required for all reorganizations.

Accepted Answer

A) True 
 B)False

Question 16

The assets of Bold Corporation have a $1,000,000 basis and a $3,000,000 FMV.Its liabilities are $500,000.Tidel Corporation acquires 80% of the Bold Corporation stock for $2,000,000.What gain is recognized by Bold Corporation if a timely Sec.338 election is made by Tidel Corporation? What is the total basis of the assets to Bold Corporation following the deemed sale? Assume a 34% corporate tax rate.

Accepted Answer

The answer of The assets of Bold Corporation have a...

Question 17

In a Type B reorganization,the
1)stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent.
2)acquiring corporation must have control of the target corporation immediately after the acquisition.

Accepted Answer

A) Only statement 1 is correct. 
B) Only statement 2 is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 18

Acquiring Corporation is 100%-owned by Peter Hart.Target Corporation is 100% owned by Dick Weber.The two individuals are not related.Target Corporation has $400,000 of NOL carryovers at the time Acquiring Corporation is considering making a cash acquisition of part or all of Target Corporation's stock.What is the maximum amount of Target stock that can be acquired in a single transaction without the Sec.382 loss limitation rules applying to the NOLs?

Accepted Answer

A) 49% 
B) 50% 
C) 80% 
D) Any acquisition of Target stock will cause the Sec.382 loss limitation to apply.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

In a nontaxable reorganization,shareholders of the target corporation recognize gain or loss.

Accepted Answer

A) True 
 B)False

Exam 7: Corporate Acquisitions and Reorganizations

Jersey Corporation purchased 50% of Target Corporation's single class of stock on June 1 of this year.They purchased an additional 40% on November 20 of this year.The Sec.338 election must be made on or before

Identify which of the following statements is false.

In a nontaxable reorganization,the acquiring corporation has a holding period for the acquired assets that begins on the day after the transaction date.

Identify which of the following statements is false.

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.

Why would an acquiring corporation want an acquisition to be tax-free if it gets only a substituted basis rather than a step-up basis for the acquired assets?

Advance rulings are required for all reorganizations.

In a Type B reorganization,the 1) stock of the target corporation is acquired solely for the voting stock of either the acquiring corporation or its parent. 2) acquiring corporation must have control of the target corporation immediately after the acquisition.

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

In a nontaxable reorganization,shareholders of the target corporation recognize gain or loss.