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Exam 8: Corporate Formation, Neorganization, and Liquidation

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Question 31

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Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?

A) Selling expenses incurred by the buyer.
B) Acquisition cost of the buyer.
C) Capital improvements made to the property by the buyer.
D) Depreciation of the property by the buyer.

E) A) and B)
F) C) and D)

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Question 32

Multiple Choice

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Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation of a corporation?

A) The liquidated corporation always recognizes loss on the distribution of property in complete liquidation of the corporation.
B) The liquidated corporation never recognizes loss on the distribution of property in complete liquidation of the corporation.
C) The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation if the property is distributed to individuals who are not related parties to the corporation.
D) The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation only if the property is distributed to individuals who are related parties to the corporation.

E) C) and D)
F) A) and B)

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Question 33

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Maria defers $100 of gain realized in a section 351 transaction.The stock she receives in the exchange has a fair market value of $500.Maria's tax basis in the stock will be $400.

Which of the following statements best describes the tax consequences of a section 338 election?

M Corporation assumes a $200 liability attached to property transferred to it by Jane in a section 351 transaction.In all cases,the assumed liability will be treated as boot received by Jane.

Which of the following statements best describes the continuity of interest principle as it applies to a tax-deferred acquisition?

Which of the following statements does not describe a requirement that must be met in a tax-deferred reverse triangular merger?

Don and Marie formed Paper Lilies Corporation on January 2.Don contributed cash of $400,000 in return for 50 percent of the corporation's stock.Marie contributed a building and land with the following fair market values and tax-adjusted bases in return for 50 percent of the corporation's stock. To equalize the exchange,Paper Lilies Corporation paid Marie $50,000 in addition to her stock. a.What amount of gain or loss does Marie realize on the formation of the corporation? b.What amount of gain or loss,if any,does she recognize? c.What is Marie's tax basis in the stock she receives in return for her contribution of property to the corporation? d.What adjusted basis does Paper Lilies Corporation take in the land and building received from Marie?

Keegan incorporated his sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax-adjusted bases. The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan. What amount of gain or loss does Keegan realize on the transfer of the property to his corporation?

Tax considerations are always the primary reason for structuring an acquisition.

Which of the following statements best describes a section 338 transaction?

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $100 on the property transferred.What is the corporation's tax basis in the property received in the exchange?

A liquidated corporation will always recognize gain in a complete liquidation.

Oriole,Inc.decided to liquidate its wholly-owned subsidiary,Tiger Corporation.Tiger had the following tax accounting balance sheet. a.What amount of gain or loss does Tiger recognize in the complete liquidation? b.What amount of gain or loss does Oriole recognize in the complete liquidation? c.What is Oriole's tax basis in the building and land after the complete liquidation?

Francine incorporated her sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax-adjusted bases. The corporation also assumed a mortgage of $60,000 attached to the building and land.The fair market value of the corporation's stock received in the exchange was $150,000. a.What amount of gain or loss does Francine realize on the transfer of the property to her corporation? b.What amount of gain or loss does Francine recognize on the transfer of the property to her corporation? c.What is Francine's basis in the stock she receives in her corporation?

Which of the following statements best describes the concept of control as it applies to a section 351 transaction?

Keegan incorporated his sole proprietorship by transferring inventory,a building,and land to the corporation in return for 100 percent of the corporation's stock.The property transferred to the corporation had the following fair market values and tax-adjusted bases. The fair market value of the corporation's stock received in the exchange equaled the fair market value of the assets transferred to the corporation by Keegan. Assuming the gain or loss realized in this problem is deferred under §351,what is Keegan's basis in the stock he receives in his corporation?

Jamie transferred 100 percent of her stock in Fox Company to Otter Corporation in a Type A merger.In exchange,she received stock in Otter with a fair market value of $400,000 plus $600,000 in cash.Jamie's tax basis in the Fox stock was $600,000.What amount of gain does Jamie recognize in the exchange and what is her basis in the Otter stock she receives?

Gary and Laura decided to liquidate their jointly owned corporation,Amelia,Inc.After liquidating its remaining inventory and paying off its remaining liabilities,Amelia had the following tax accounting balance sheet. Under the terms of the agreement,Gary will receive the $100,000 cash in exchange for his interest in Amelia.Gary's tax basis in his Amelia stock is $30,000.Laura will receive the building and land in exchange for her interest in Amelia.Laura's tax basis in her Amelia stock is $60,000. What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

Which statement best describes the concept of realization as it applies to gain or loss?