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Exam 7: Corporate Acquisitions and Reorganizations

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Question 21

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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?

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No gain is recognized if the b...

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Question 22

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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?

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Her realized gain is $2,000 ($87,000 - $...

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Question 23

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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.

The Sec.338 deemed sale rules require that 70% of the target corporation's stock be owned.

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?

The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment.The courts have placed four primary restrictions on reorganization transactions.What are they?

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

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?

A stock acquisition that is not treated as a purchase for purposes of meeting the Sec.338 rules is

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

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 true.

Brown Corporation has assets with a $650,000 basis and an $800,000 FMV.The assets are subject to $250,000 in liabilities.Clark Corporation acquires all of Brown's assets and liabilities for $600,000 in cash.Brown Corporation then liquidates.What is Clark Corporation's basis in the acquired assets?

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?

Identify which of the following statements is true.

Define the seven classes of assets used in allocating basis when using the residual method.

Identify which of the following statements is false.

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

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?

What are the two steps of a Sec.338 deemed liquidation election?