Which one of the following statements is correct?
A)If an acquisition is made with cash,then the cost of that acquisition is dependent upon the acquisition gains.
B)Acquisitions made by exchanging shares of stock are normally taxable transactions.
C)Shareholders of the acquired firm must immediately realize capital gains/losses in a cash acquisition.
D)Shareholders of the acquired firm are generally indifferent between a cash or a stock transaction.
E)Acquisitions based on legitimate business purposes are not taxable transactions regardless of the means of financing used.

Question

Quizplus · Accepted Answer

In a cash acquisition, shareholders of the acquired firm must recognize any capital gains or losses at the time of the acquisition because they are receiving cash in exchange for their shares. This is a taxable event where the shareholders must report the difference between the acquisition price and their basis in the stock.

Which One of the Following Statements Is Correct