Question 1

Additional capital may be obtained by a corporation by issuing debt securities or equity securities. What advantages result from issuing debt in the capital structure?

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Question 2

Lafayette Corporation distributes $80,000 in cash along with land having a $40,000 adjusted basis and a $70,000 FMV to its shareholder, Gus. The corporation has accumulated substantial earnings and profits.
a. What are the tax consequences to Lafayette Corporation?
b. What are the tax consequences to the shareholder?
c. What is the shareholder's basis in the land?

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The answer of Lafayette Corporation distributes $80,000 in cash along...

Question 3

Whaler Corporation makes a liquidating distribution of land with a $70,000 adjusted basis and a $100,000 FMV to shareholder Horton, who surrenders his Whaler stock (adjusted basis $60,000)to the corporation. Alice, another shareholder, receives $100,000 cash for her shares ($115,000 adjusted basis).
a. What are the tax consequences to Whaler Corporation?
b. What are the tax consequences to both Horton and Alice?
c. What is Horton's basis in the land?

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Question 4

Discuss the tax consequences of a complete liquidation to the liquidated corporation and to the shareholders.

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Question 5

A corporation is owned equally by 10 unrelated individuals. Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250. The company claims a $15,000 dividends-received deduction and pays $25,000 dividends to its shareholders. The corporation had accumulated earnings and profits of $220,000 at the end of the preceding year. The company's reasonable needs of the business at the end of the year of $240,000. What is the amount of the accumulated earnings tax?

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The answer of A corporation is owned equally by 10...

Question 6

Pursuant to a complete liquidation, Southern Electric Corporation distributes the following assets to its shareholders:
Inventory: $15,000 basis, $20,000 FMV
Land held as an investment: $10,000 basis, $40,000 FMV
Marketable securities: $35,000 basis; $30,000 FMV
What are the tax consequences to Southern Electric Corporation?

Accepted Answer

The answer of Pursuant to a complete liquidation, Southern Electric...

Question 7

Atlantic Corporation, a calendar-year taxpayer, has $120,000 of accumulated E & P deficit as of January 1. Atlantic's current E & P is $40,000. The corporation makes a $50,000 distribution to its shareholders. Shareholders have stock basis of $60,000. What is the amount of Atlantic's E & P deficit at the end of the year?

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The answer of Atlantic Corporation, a calendar-year taxpayer, has $120,000...

Question 8

Tara and Jeff wish to form TJ Corporation. They have determined that they need initial capitalization of $1,000,000. What tax issues should they consider when determining whether to issue stock only or some combination of debt and equity?

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Question 9

Chi transfers assets with a $150,000 FMV (basis $80,000)and $100,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $50,000. The corporation assumes the $100,000 mortgage.
a. What is the amount of gain recognized by Chi?
b. What is the adjusted basis if the stock received by Chi?
c. What is the basis of the assets to the corporation?

Accepted Answer

The answer of Chi transfers assets with a $150,000 FMV...

Question 10

Nguyen Corporation, a calendar-year corporation, has a $40,000 current E&P deficit and a $60,000 positive accumulated E&P balance. Also assume that shareholders of the corporation have a total basis in outstanding shares of $35,000. A $75,000 distribution is made to the shareholders on the last day of the year. What is the tax treatment of the $75,000 distribution to the shareholders?

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Question 11

How does the treatment of a liquidation of a subsidiary into its parent corporation differ from the general rule?

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Question 12

In the current year, Bosc Corporation has taxable income of $100,000, and its regular tax liability is $22,250. Bartlett's AMT adjustments other than ACE are $70,000, and it has $320,000 of adjusted current earnings. What is the amount of Bosc Corporation's AMT liability?

Accepted Answer

The answer of In the current year, Bosc Corporation has...

Question 13

Janice transfers land and a building with a $180,000 adjusted basis and a $200,000 FMV to Optimum Corporation in exchange for 100% of its stock in a transaction qualifying under Sec. 351. Shortly before the transfer, Janice obtains a $140,000 mortgage on the property and uses the funds to pay off personal debts. The corporation then assumes the $140,000 mortgage and issues stock worth $60,000. The mortgage assumption lacks business purpose and is intended to place cash in Janice's hands.
a. What is the gain realized by Janice?
b. What is the gain recognized by Janice?
c. What is the basis of the stock received by Janice?
d. What is Optimum's basis in the land and building?

Accepted Answer

The answer of Janice transfers land and a building with...

Question 14

Individuals Jimmy and Ellen form JE Corporation. Ellen transfers land and a building with a $175,000 adjusted basis and $200,000 FMV in exchange for 50% of the stock of the JE Corporation and a $20,000 note. Jimmy transfers cash of $200,000 for 50% of the stock and a $20,000 note. The JE stock has a fair market value of $360,000. What is:
(a)the amount of Ellen's gain or loss recognized on the transfer?
(b)the basis of her stock in JE Corporation?
(c)JE Corporation's basis in the land and building (together)transferred by Ellen?

Accepted Answer

The answer of Individuals Jimmy and Ellen form JE Corporation....

Question 15

Slimtin Corporation has $400,000 of regular taxable income. It has depreciation adjustments of $100,000 (MACRS depreciation in excess of 150% declining balance method), and its adjusted current earnings is $600,000.
Part A-Calculate Slimtin's AMT liability.
Part B-Slimtin has a $41,000 AMT credit carryover from last year. How much, if any, can be applied this year?

Accepted Answer

The answer of Slimtin Corporation has $400,000 of regular taxable...

Question 16

Tester Corporation acquired all of the stock of Socco Corporation five years ago for $400,000. Socco Corporation has been completely liquidated this year, and all of its assets have been transferred to Tester Corporation. Immediately prior to the liquidation, Socco had an adjusted basis in its assets of $560,000, and the assets were worth $700,000.
a. How much gain or loss will Socco recognize due to the liquidation?
b. How much gain or loss will Tester recognize due to the liquidation?
c. What is Tester's adjusted basis in the assets received from Socco?

Accepted Answer

The answer of Tester Corporation acquired all of the stock...

Question 17

What factors are considered in determining whether a redemption will be treated as an exchange subject to capital gain or loss treatment?

Accepted Answer

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Quiz 16: Corporations