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Exam 7: Corporations Reorganizations

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Question 51

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Acquiring Corporation transfers $500,000 stock and land with a value of $400,000 (basis of $250,000) to Target for most of its assets. The assets not acquired in the "Type A" reorganization are distributed to Target's shareholder, Tia. They are valued at $100,000 (basis of $120,000). Acquiring stock and the land also are distributed to Tia in exchange for her stock in Target. Tia's basis in her stock is $650,000. What is the gain or loss recognized by Acquiring, Target, and Tia on this restructuring? What is Tia's basis in the Acquiring stock?

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Acquiring recognizes $150,000 gain on la...

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Question 52

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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?

A) All of this transaction is taxable.
B) The transaction is not currently taxable as it qualifies as a "Type E" reorganization.
C) Only the exchange of the preferred stock for the common stock is taxable, because of the reduction in preferential treatment upon liquidation.
D) Only the exchange of the preferred stock for the bond is taxable.
E) None of the above.

F) D) and E)
G) A) and E)

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Question 53

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Explain whether shareholders are exempted from gain/loss recognition in nontaxable corporate reorganization or the gain/loss recognition is merely postponed. If postponed, what is the vehicle for ensuring the postponed gain/loss will be recognized in the future?

Which of the following statements is true?

The ____________________ provides a restriction on the amount of tax attributes that can be carried over from the target to the acquiring corporation after an ownership change occurs.

When a corporation has cancellation-of-debt relief in a "Type G" reorganization, the corporation reduces its benefits in tax items such as earnings and profits.

Xian Corporation and Win Corporation would like to combine into one entity. Win redeems 90% of its common stock and all of its nonvoting preferred stock, in exchange for 40% of Xian's common and 20% of its nonvoting preferred stock. Win then distributes the Xian stock to its shareholders. Win then becomes a subsidiary of Xian.

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?

Which of the following statements is true concerning all types of tax-free corporate reorganizations?

An exchange of common stock for preferred stock or bonds for preferred stock can qualify as a "Type E" reorganization.

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.

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

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.

Match the following items with the statements below. Terms may be used more than once. -Can be treated as boot if cash as well as voting stock is the consideration used by the acquiring corporation in a "Type C" reorganization.

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?

When substantially all of the assets of the target corporation are received in exchange for voting stock and selected liabilities, the restructuring can qualify as a "Type C" reorganization.

Loss Corporation carries over an NOL, business credits, built-in ordinary losses, and capital losses. The § 382 limitation is applied to these carryover attributes in the following order: ____________________, ____________________, ____________________, ____________________.

All of the following statements are true about corporate reorganization except:

Federal bankruptcy legislation created the ____________________ reorganization. To qualify for this type of reorganization, the corporation must be ____________________ before the reorganization.

When applying the § 382 limitation to deductible losses and credits, the § 382 limit first is applied to capital loss carryovers, and then to NOLs.