Question 1

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

Accepted Answer

In a triangular Type A merger, the acquiring subsidiary corporation indeed must obtain substantially all of the target corporation's assets, as this is a characteristic of Type A mergers, where the merger is structured through the subsidiary.

Question 2

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

Accepted Answer

In a Type A reorganization, no gain is recognized by either the acquiring or the target corporation. The $800,000 of nonvoting preferred stock and $200,000 of securities that Acme Corporation gave to Fisher Corporation have an aggregate FMV of $1,000,000 ($800,000 + $200,000). This is equal to the FMV of the assets transferred to Acme, so there is no boot. The $500,000 of liabilities that Acme assumed are considered part of the purchase price of the assets, so they increase the basis of the assets to $1,100,000 ($600,000 + $500,000). Barbara's Fisher Corporation stock had an adjusted basis of $400,000, so when she receives $1,000,000 worth of Acme stock in exchange for her Fisher Corporation stock, she has a $600,000 realized gain ($1,000,000 - $400,000). Because this is a capital transaction, Barbara's gain is a capital gain.

Question 3

Identify which of the following statements is true.

Accepted Answer

In a tax-free reorganization, the acquiring corporation's holding period for the acquired properties indeed includes the period of time the target corporation held the properties. This allows the acquiring corporation to benefit from a longer holding period for purposes of determining long-term capital gains.

Question 4

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

The answer of American Corporation acquires the noncash assets of...

Question 5

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?

Accepted Answer

The answer of Acme Corporation acquires Fisher Corporation's assets in...

Question 6

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?

Accepted Answer

The answer of Brad exchanges 1,000 shares of Goodyear Corporation...

Question 7

Martha owns Gator Corporation stock having an adjusted basis of $21,000. As part of a tax-free reorganization involving Gator and Baker Corporations, Martha exchanges her Gator stock for $18,000 of Baker stock and $6,000 (face amount and FMV)of Baker securities. What is Martha's basis in the Baker stock?

Accepted Answer

The answer of Martha owns Gator Corporation stock having an...

Question 8

Identify which of the following statements is false.

Accepted Answer

To qualify as a Type C reorganization, the target corporation does not have to be formally dissolved. Instead, it must transfer its assets, including all of its liabilities, to the acquiring corporation in exchange for its stock or securities.

Question 9

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

Accepted Answer

The answer of Briefly describe A, B, C, D, and...

Question 10

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 11

Type A reorganizations include mergers and consolidations.

Accepted Answer

Type A reorganizations, also known as statutory mergers or consolidations, involve the merger or consolidation of two or more corporations into a single corporation.

Question 12

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.

Accepted Answer

In a Type B reorganization, the acquiring corporation uses solely its voting stock to acquire control of the target corporation, not its assets.

Question 13

Identify which of the following statements is true.

Accepted Answer

The acquired corporation in a Type C reorganization may retain its corporation charter.

Question 14

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

Both statements are correct. A Type B reorganization involves the acquisition of the target corporation's stock solely for the voting stock of the acquiring corporation or its parent. Furthermore, the acquiring corporation must have control of the target corporation immediately after the acquisition.

Question 15

Buddy owns 100 of the outstanding shares of Binder Corporation stock. Buddy's basis in his Binder Corporation stock is $100,000. Binder Corporation is merged with Clipper Corporation in a tax-free reorganization. Buddy receives 50 shares of Clipper stock worth $150,000 and $150,000 cash. The remaining 100 shares of Binder stock were owned by Bruce who received the same consideration for his Binder stock. Binder and Clipper have E&P balances of $250,000 and $500,000, respectively. Buddy and Bruce each own 25% of Clipper Corporation's 200 shares of stock after the reorganization. Which of the following is correct?

Accepted Answer

Buddy recognizes $150,000 as a capital gain because the cash received ($150,000) is considered boot in the reorganization. Since the transaction is a tax-free reorganization, only the boot received is taxable. The basis of Buddy's Binder Corporation stock ($100,000) is not sufficient to cover the cash received, thus the excess ($150,000 - $100,000 = $50,000) does not factor into the capital gain calculation directly in this context. The entire amount of cash received is treated as a capital gain because it exceeds Buddy's basis in the Binder stock. The dividend income option is incorrect because the primary nature of the transaction is a tax-free reorganization, and the cash received is treated as boot, leading to capital gain treatment rather than dividend income.

Question 16

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

In a Type B reorganization, the acquiring corporation issues voting stock to the target corporation's shareholders, and the target corporation becomes a subsidiary of the acquiring corporation.

Question 17

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 18

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

This transaction is classified as a Type C reorganization because it involves the acquisition of assets by one corporation solely in exchange for voting stock of the acquiring corporation and the distribution of that stock to the shareholders of the target corporation. The fact that Stone Corporation's shareholders own 20% of the Rock stock after the acquisition is irrelevant to the classification of the transaction.

Question 19

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?

Accepted Answer

The answer of Marty is a party to a tax-free...

Question 20

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

Accepted Answer

Barbara's basis in the Acme securities is $200,000, which is the face amount and FMV of the securities she received. In a Type A reorganization, the basis of the property received (in this case, the securities) is generally the same as the basis of the property exchanged (her Fisher stock), adjusted for any money received or liabilities assumed. However, since the securities are specified with a face amount and FMV of $200,000, and this is part of the consideration received, it directly establishes the basis for those securities.

Quiz 7: Corporate Acquisitions and Reorganizations

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.

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?

Identify which of the following statements is false.

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

Type A reorganizations include mergers and consolidations.

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.

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.

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.

Identify which of the following statements is true.