Question 1

Asity Corporation is interested in acquiring the majority of Pitta Corporation's assets. Pitta's assets are currently valued at $950,000, and its liabilities are $250,000. However, there is one operating division of Pitta in which Asity is not interested. Since Pitta desires to be taken over by Asity, Pitta first sells the unwanted division for its net fair market value of $250,000 ($350,000 FMV assets - $100,000 liabilities). Pitta then transfers its remaining assets and liabilities to Asity for $450,000 in common voting stock. Which of the following statements is correct with regards to the proposed restructuring?

Accepted Answer

The step transaction can be applied to this transaction because the sale of the unwanted division and the transfer of the remaining assets and liabilities to Asity are part of a single integrated plan to acquire the majority of Pitta's assets.

Question 2

Dahlia owns $100,000 in Crimson Topaz preferred stock. The annual dividend rate on the preferred is 4%. She exchanges this preferred stock for $60,000 in Crimson Topaz bonds paying 4% annual interest and $40,000 in common stock. How is this transaction treated for tax purposes?

Accepted Answer

The answer of Dahlia owns $100,000 in Crimson Topaz preferred...

Question 3

Gato Corporation exchanged 25% of its stock with Lobo for all of its assets. The Gato stock was distributed to the Lobo shareholders in exchange for all of their stock. Lobo then liquidated. At the time of the acquisition by Gato, the value of Lobo was $3 million, and the Federal long-term tax-exempt rate was 4%. In the current year, Gato has $500,000 of taxable income. Lobo has excess credits from prior years amounting to $150,000. What amount of Lobo's credits may Gato use in computing its Federal income tax for the year, if Gato is in the 34% tax bracket?

Accepted Answer

The answer of Gato Corporation exchanged 25% of its stock...

Question 4

Crested Serpent Eagle (CSE) Corporation is owned by Lin Yuan and Yu Chi. It has been in the manufacturing and lumber businesses for 20 years. For liability protection, the manufacturing assets of CSE are transferred to Serpent Corporation for all of its stock. This stock is distributed to Lin Yuan in exchange for her CSE stock. The lumber assets are transferred to Eagle Corporation for all of its stock. Yu Chi receives the Eagle stock in exchange for his CSE shares. CSE then terminates.

Accepted Answer

In a split-up "Type D" reorganization, the assets of a corporation are transferred to two or more controlled corporations solely in exchange for stock of each controlled corporation. In this case, the manufacturing assets are transferred to Serpent Corporation for stock and the lumber assets are transferred to Eagle Corporation for stock. This satisfies the requirements of a split-up "Type D" reorganization.

Question 5

The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions. When ____________________ is received, gain may be ____________________ and losses are ____________________.

Accepted Answer

The answer of The tax treatment of the parties involved...

Question 6

Since the "Type B" reorganization precludes the use of ____________________, gain or loss is not recognized. In this type of reorganization, a ____________________ relationship between the acquiring and target corporations is created.

Accepted Answer

The answer of Since the "Type B" reorganization precludes the...

Question 7

Which of the following statements is correct with regards to liabilities in corporate reorganizations?

Accepted Answer

The answer of Which of the following statements is correct...

Question 8

Monal Corporation merged with Bobwhite Corporation two years ago. At the time of the merger, Monal held an earnings and profits (E & P) deficit of $250,000 and Bobwhite had a positive E & P of $200,000. Last year's current E & P was $ 100,000 for the successor company. Despite having only $10,000 E & P for the current year, Monal makes a distribution to its shareholders of $270,000. How is the distribution taxed to the shareholders?

Accepted Answer

The answer of Monal Corporation merged with Bobwhite Corporation two...

Question 9

Which of the following statements regarding the applicability of the judicial doctrines to a "Type G" reorganization is correct?

Accepted Answer

The answer of Which of the following statements regarding the...

Question 10

Besides the statutory requirements for tax-free treatment for corporate reorganizations, there are several judicial requirements. Which of the following is not a judicial requirement for corporate reorganizations?

Accepted Answer

The answer of Besides the statutory requirements for tax-free treatment...

Question 11

Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain's shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 5% and Brain's discount factor is 10%, what is the maximum amount that Brain can use of Heart's NOL this year?

Accepted Answer

The maximum amount of NOL that Brain can use is limited to the Section 382 limitation, which is calculated as the value of Heart's net assets multiplied by the Federal long-term tax-exempt rate, or $1 million * 5% = $50,000. Therefore, Brain can use up to $50,000 of Heart's NOL this year. The discount factor is not relevant for the calculation of the Section 382 limitation.

Question 12

____________________ is other property received along with stock in a restructuring falling under § 368. If the shareholders receive the other property, it can be taxed as ____________________ and/or ____________________.

Accepted Answer

The answer of ____________________ is other property received along with...

Question 13

Cuckoo Corporation has just lost a $500,000 product liability suit. Before the lawsuit, its assets were valued at $600,000 (basis of $400,000), and it had general liabilities of $300,000 and $100,000 of bonds outstanding. It also has a $50,000 capital loss carryover, $10,000 general business credits, and $150,000 NOL. Cuckoo is solely owed by Emmy Lou. A state restructuring creates Turaco as the successor company to Cuckoo. Which of the following statements is false?

Accepted Answer

The answer of Cuckoo Corporation has just lost a $500,000...

Question 14

Pallid Swift, Inc., is an S corporation located in Colorado. In the past year, PallidSwift has become profitable; but due to its rapid growth, Pallid Swift has no excess cash for distributions. Therefore, Pallid Swift decides that it should become a C corporation.

Accepted Answer

The answer of Pallid Swift, Inc., is an S corporation...

Question 15

Burmese Corporation is interested in acquiring Javanese Corporation by transferring 30% of its stock for all of Javanese's assets valued at $500,000 (basis of $150,000) and its $200,000 of liabilities. Javanese has created $50,000 in general business research credits which it cannot use. Javanese concentrates on pharmaceutical research whereas Burmese manufactures sun glasses. Burmese uses a discount factor of 8% and the Federal applicable rate is 4%. Javanese will terminate after the restructuring. How will this transaction be treated for tax purposes?

Accepted Answer

The answer of Burmese Corporation is interested in acquiring Javanese...

Question 16

In a(n) ____________________ reorganization, the acquiring corporation transfers its assets to the target for at least ____________________ percent of the target stock.

Accepted Answer

The answer of In a(n) ____________________ reorganization, the acquiring corporation...

Question 17

Weaver Corporation has net assets valued at $800,000 and an NOL of $250,000. On September 30 of the current year, Weaver is acquired by Loom Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Weaver shareholders receive 30% of Loom's shares in exchange for all of their Weaver stock. Assuming that the Federal long-term tax-exempt rate is 8%, what is the maximum amount of Weaver's NOL available to Loom in the current year?

Accepted Answer

The answer of Weaver Corporation has net assets valued at...

Question 18

WhydahCo is owned by Gilda and her four nieces and nephews. Gilda owns all the WhydahCo voting stock and its $50,000 bond. She wants to relinquish control of the entity; accordingly, WhydahCo redeems all of Gilda's voting common stock and issues her its preferred stock . She also exchanges her bond for preferred stock. The nonvoting preferred shares owned by the nieces and nephew are exchanged for voting common stock. Which of the following statements is correct?

Accepted Answer

The transaction described is a "Type E" reorganization under the Internal Revenue Code, which involves a redemption of stock followed by a recapitalization. Such a transaction is not currently taxable. However, it is important to note that there may be other tax consequences, such as potential capital gains taxes upon the sale of the preferred stock received in exchange for the bond.

Question 19

In a ____________________ reorganization, the original corporation must receive at least 80% percent of new corporations' stock. The assets transferred to the new corporations must have been owned and conducted as a trade or business for at least ____________________ years.

Accepted Answer

The answer of In a ____________________ reorganization, the original corporation...

Question 20

Which of the following statements is false?

Accepted Answer

The answer of Which of the following statements is false?
...

Quiz 7: Corporations: Reorganizations

Dahlia owns $100,000 in Crimson Topaz preferred stock. The annual dividend rate on the preferred is 4%. She exchanges this preferred stock for $60,000 in Crimson Topaz bonds paying 4% annual interest and $40,000 in common stock. How is this transaction treated for tax purposes?

The tax treatment of the parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions. When is received, gain may be and losses are .

Since the "Type B" reorganization precludes the use of , gain or loss is not recognized. In this type of reorganization, a relationship between the acquiring and target corporations is created.

Which of the following statements is correct with regards to liabilities in corporate reorganizations?

Which of the following statements regarding the applicability of the judicial doctrines to a "Type G" reorganization is correct?

Besides the statutory requirements for tax-free treatment for corporate reorganizations, there are several judicial requirements. Which of the following is not a judicial requirement for corporate reorganizations?

is other property received along with stock in a restructuring falling under § 368. If the shareholders receive the other property, it can be taxed as and/or .

Pallid Swift, Inc., is an S corporation located in Colorado. In the past year, PallidSwift has become profitable; but due to its rapid growth, Pallid Swift has no excess cash for distributions. Therefore, Pallid Swift decides that it should become a C corporation.

In a(n) reorganization, the acquiring corporation transfers its assets to the target for at least percent of the target stock.

In a reorganization, the original corporation must receive at least 80% percent of new corporations' stock. The assets transferred to the new corporations must have been owned and conducted as a trade or business for at least years.

Which of the following statements is false?