Question 1

Pacific Corporation acquires 80% of the stock of Jackson Corporation for $3,000,000 in the current year. Jackson's assets have a basis of $2,000,000 and its liabilities are $800,000. The assets are worth $3,500,000. What gain is recognized by Jackson Corporation on the deemed sale of its assets if a Sec. 338 election is made?

Accepted Answer

FMV of $3,500,000 less basis of $2,000,000 equals a recognized gain of $1,500,000.

Question 2

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

Accepted Answer

When a Sec. 338 deemed liquidation election is made, the target corporation is treated as if it sold all of its assets to a new corporation, which then assumes the target corporation's liabilities. This results in a deemed liquidation of the target corporation, and as a result, the corporation's tax attributes (such as net operating losses, capital losses, and tax credits) are lost.

Question 3

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?

Accepted Answer

In a taxable asset acquisition, the purchaser's basis for the assets is their acquisition cost (Sec. 1012). In this instance, the acquisition cost is $600,000 cash plus the assumption of $250,000 in liabilities for a total of $850,000.

Question 4

Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year. Melon Corporation uses a calendar tax year. To use the Sec. 338 election, Melon Corporation must purchase

Accepted Answer

The answer of Melon Corporation makes its first purchase of...

Question 5

Identify which of the following statements is false.

Accepted Answer

A taxable acquisition of a target corporation's assets does result in the recognition of gain or loss on the disposition of each individual asset.

Question 6

Identify which of the following statements is false.

Accepted Answer

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

Question 7

Identify which of the following statements is false.

Accepted Answer

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

Question 8

Which of the following definitions of Sec. 338 property classes is not correct?

Accepted Answer

Class III does not include covenants not to compete or similar restrictions on trade. It includes contractual rights such as licenses, permits, and franchise agreements.

Question 9

Axle Corporation acquires 100% of Drexel Corporation's stock from Drexel's shareholders for $500,000 cash. Drexel Corporation has assets with a $600,000 adjusted basis and an $800,000 FMV. The assets are subject to $200,000 in liabilities. Drexel Corporation shareholders purchased their stock eight years ago for $300,000. Axle Corporation's basis in the Drexel Corporation stock is

Accepted Answer

The answer of Axle Corporation acquires 100% of Drexel Corporation's...

Question 10

Identify which of the following statements is true.

Accepted Answer

When an acquiring corporation makes a Sec. 338 election, the target corporation is treated in many respects as a new corporation for tax purposes, including a step-up in the target corporation's assets to fair market value and the adjustment of tax attributes such as net operating losses and depreciation deductions. Option A is false because tax attributes of the target corporation are generally subject to limitation or reduction if a Sec. 338 election is made. Option B is false because the new target corporation is not required to adopt the old target corporation's tax year.

Question 11

Identify which of the following statements is true.

Accepted Answer

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

Question 12

Dreyer Corporation purchased 5% of Willy Corporation's stock five years ago for $100,000. Dreyer then decides to purchase an additional 80% of the Willy stock for $1,000,000 on April 15 of the current year. On the acquisition date, Willy Corporation's liabilities are $150,000. A $300,000 tax liability is incurred by Willy on the Sec. 338 deemed sale. What is the total basis of Willy Corporation's assets for Sec. 338 basis allocation purposes?

Accepted Answer

The answer of Dreyer Corporation purchased 5% of Willy Corporation's...

Question 13

Identify which of the following statements is true.

Accepted Answer

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

Question 14

In a taxable asset acquisition, the purchaser does not acquire unknown and contingent liabilities.

Accepted Answer

The answer of In a taxable asset acquisition, the purchaser...

Question 15

Identify which of the following statements is true.

Accepted Answer

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

Question 16

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

The answer of Jersey Corporation purchased 50% of Target Corporation's...

Question 17

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

Accepted Answer

The answer of A stock acquisition that is not treated...

Question 18

Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

Accepted Answer

Taxable acquisition transactions can indeed be a purchase of assets, such as when one company buys specific assets or business units from another company. They can also be a purchase of stock, where one company acquires all or a majority stake in another company by buying its shares. Both types of transactions have tax implications and may require different accounting treatments.

Question 19

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

Accepted Answer

The Sec. 338 deemed sale rules require that 80% of the target corporation's stock be owned.

Question 20

Parent Corporation purchases all of Target Corporation's stock for $200,000 and makes a deemed liquidation election. Target Corporation has Class I assets with an adjusted basis of $55,000 and an FMV of $55,000; Class II assets with an adjusted basis of $40,000 and an FMV of $60,000; and Class V assets with an adjusted basis of
$70,000 and an FMV of $100,000. The Class V assets are subject to a $20,000 liability. Assume a 34% corporate tax rate. What is the adjusted grossed- up basis of Target Corporation's stock?

Accepted Answer

The answer of Parent Corporation purchases all of Target Corporation's...

Quiz 7: Corporate Acquisitions and Reorganizations

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

Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year. Melon Corporation uses a calendar tax year. To use the Sec. 338 election, Melon Corporation must purchase

Identify which of the following statements is false.

Identify which of the following statements is false.

Identify which of the following statements is false.

Which of the following definitions of Sec. 338 property classes is not correct?

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

In a taxable asset acquisition, the purchaser does not acquire unknown and contingent liabilities.

Identify which of the following statements is true.

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

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

Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.

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