Deck 7: Corporations: Reorganizations

Question 1

Coral Corporation transfers all of its assets, basis of $440,000 and FMV of $600,000, to Maroon Corporation.Coral receives voting stock in Maroon valued at $500,000 and Maroon assumes $100,000 of Coral's liabilities.Coral distributes the Maroon voting stock to its shareholders and is liquidated.Which, if any, of the following statements regarding this transaction is correct?

A)Coral has a realized gain of $60,000 and a recognized gain of $0.
B)Coral has a realized gain of $60,000 and a recognized gain of $100,000.
C)Coral has a realized gain of $160,000 and a recognized gain of $0.
D)Coral has a realized gain of $160,000 and a recognized gain of $100,000.
E)None of the above statements is correct.

Answer 1

C

Question 2

Sienna Corporation which has an E & P deficit of $340,000 merges with Indigo Corporation which has a positive E & P of $660,000.The merger occurs on March 31.On October 31, Indigo distributes $400,000 to the shareholders.There is no current E&P.How is the distribution taxed to the shareholders?

A)$400,000 taxed as a dividend.
B)$340,000 taxed as a dividend and $60,000 treated as return of capital.
C)$320,000 taxed as a dividend and $80,000 treated as return of capital.
D)$60,000 taxed as a dividend and $340,000 treated as return of capital.
E)None of the above.

Answer 2

A

Question 3

Joan owns all the stock in Turquoise Corporation.Joan has a basis of $200,000 in the Turquoise stock, which currently has a fair market value of $500,000.Turquoise is merged into Lima Corporation.Joan receives Lima preferred stock worth $200,000 and common stock worth $300,000.Joan recognizes a gain of:

A)$500,000.
B)$300,000.
C)$200,000.
D)$0.
E)None of the above.

Answer 3

D

Question 4

Gray Corporation had net assets with a fair market value of $4 million and an NOL carryforward of $3.0 million.Last year, Gray's shareholders received 40% of Sunset stock in a transaction qualifying as a reorganization.The long-term tax-exempt rate at that time was 9%.What is the maximum amount of Gray's NOL available to offset Sunset's $2,000,000 income for the current year?

A)$0.
B)$360,000.
C)$750,000.
D)$2,000,000.
E)None of the above.

Question 5

Green Corporation transfers assets with a fair market value of $650,000 (basis of $300,000) to Brick Corporation.Green receives Brick voting stock worth $600,000 and cash of $50,000.Brick assumes none of Green's $37,500 liabilities.Green distributes the Brick stock and its liabilities to its shareholders.Green recognizes gain on the transfer of:

A)$0.
B)$37,500.
C)$50,000.
D)$87,500.
E)None of the above.

Question 6

Candace exchanges stocks she owns in Orange Corporation for stock in Lime Corporation plus a bond worth $44,000 (principal amount of $40,000).The exchange is pursuant to a tax-free reorganization of both corporations.Candace paid $250,000 for the stock in Orange four years ago.The Lime stock is worth $350,000.Candace recognizes gain on the transaction of:

A)$0.
B)$40,000.
C)$44,000.
D)$100,000.
E)None of the above.

Question 7

White Corporation has net assets with a fair market value of $14 million and an NOL carryforward of $2 million.White's shareholders receive 70% of Brown stock in a transaction qualifying as a reorganization.The merger takes place on July 1 of the current year when the long-term tax-exempt rate is 9%.What is the maximum amount of White's NOL available to offset Brown's $2,000,000 income for the year?

A)$0.
B)$630,000.
C)$1,000,000.
D)$1,260,000.
E)$2,000,000.

Question 8

Melon Corporation gives its voting stock worth $600,000 and a building worth $200,000 with a basis of $150,000 for the assets of Violet Corporation worth $800,000 and basis of $525,000.Violet distributes the stock in Melon Corporation to its sole shareholder.Which, if any, of the following statements regarding this transaction is correct?

A)Violet recognizes a gain of $200,000 on the transaction.
B)Violet recognizes a gain of $200,000 and Melon recognizes a gain of $50,000 on the transaction.
C)Melon recognizes a gain of $50,000 on the transaction.
D)Neither Melon nor Violet recognizes gain on the transaction.
E)None of the above.

Question 9

Pursuant to a plan of corporate reorganization adopted in the current year, Travis exchanged 1,000 shares of Lavender Corporation common stock which he had purchased for $200,000 for 1,200 shares of Indigo Corporation common stock that have a fair market value of $400,000.As a result of the exchange, Travis's recognized gain and his basis in the Indigo stock are:

A)No recognized gain and basis of $200,000.
B)No recognized gain and basis of $400,000.
C)Recognized gain of $200,000 and basis of $400,000.
D)Recognized gain of $200,000 and basis of $200,000.
E)None of the above.

Question 10

Sage Corporation has assets worth $4,000,000 with an adjusted basis of $3,000,000.Ebony Corporation would like to acquire all of Sage's assets in a "Type C" reorganization in exchange for $2,800,000 of voting stock, $400,000 of cash, and assumption of Sage's liabilities of $800,000.All stock received by Sage will be distributed to its shareholders and Sage will then liquidate.Which, if any, of the following statements regarding this transaction is correct?

A)Sage will realize a gain of $1,000,000 and recognize a gain of $0.
B)Sage will realize a gain of $1,000,000 and recognize a gain of $400,000.
C)Sage will realize a gain of $1,000,000 and recognize a gain of $800,000.
D)Sage will realize a gain of $1,000,000 and recognize a gain of $1,000,000.
E)None of the above statements is correct.