1. Conway Corporation sells its entire business to Acquirer for total proceeds of S10,000. Conway Corporation's basis in its business assets is $2,000. The determination of whether the gain is taxable as ordinary income or capital gain depends on:
a. the type of assets sold.
b. the nature of Conway Corporation's business operations, that is, how it has used those assets.
c. the holding period for the assets.
d. all of the above.
2. Kim exchanges stock he owns in Cardinal Corporation for stock in Robin Corporation plus a bond worth $3,600 (principal amount of $3,000). The exchange is pursuant to a corporate reorganization of both corporations that meets all of the requirements to qualify as a reorganization under Code Section 368(a)(1). Kim paid $61,600 for the stock in Cardinal Corporation four years ago. The Robin Corporation stock is worth $60,000. Kim recognizes gain on the transaction of
a. $0.
b. $2,000.
c. $3,000.
d. $3,600.
3. In considering whether to do an A-type or a C-type reorganization, the Acquiring Corporation and the Target's stockholders should consider which of the following?
a. An "A" reorganization has a more generous provision for the use of boot.
b. An "A" reorganization may be less expensive and easier to document than a C-type.
c. A "C" reorganization enables the Acquiring Corporation to more easily cherry-pick assets and liabilities of the Target.
d. All of the above.
4. Holly, a shareholder in the acquired corporation in a transaction that qualified as a reorganization under Code Section 368(a)(1), turned in 100 shares of common stock of the acquired corporation with a basis of $4,200. In return Holly received voting convertible preferred stock of the acquirer corporation worth $4,700 and a debenture with a face value of $1,000 and a value of $850. As a result, Holly must recognize a gain of
a. $1,350.
b. $850.
c. $800.
d. $0.
5. Tom and Jack who are brothers each own 50 percent of the stock of Raiders, Inc. After a serious disagreement, they decide to divide the business in two. Raiders, Inc. therefore transfers half its assets to a new corporation, Doolittle, Inc., in exchange for the stock of Doolittle, Inc. and the other half of its assets to another new corporation, Minimum, Inc., also in exchange for the stock of Minimum, Inc. Both brothers turn in their Raiders, Inc. stock with one brother receiving all of the stock of Doolittle, Inc. and the other brother receiving all of the stock of Minimum, Inc. Raiders' earnings and profits at the time were $1,000,000. This transaction can best be described as
a. two Section 351 transactions.
b. acquisitive Type D reorganization.
c. spin-off.
d. tax-free split-up.
6. Arawak, Inc. acquired all the assets of Basta Inc. for $500,000 worth of its nonvoting convertible preferred stock and $200,000 in cash (to be retained by Basta Inc.). Basta Inc.'s assets had a fair market value of $700,000 and a basis to Basta Inc. of $150,000.
What is Arawak Inc.'s basis in the acquired assets?
a. $700,000
b. $150,000
c. $350,000
d. $200,000
e. We do not have sufficient information to answer the question.
7. Fizzy, Inc., a manufacturer of seltzer water, is going through a recapitalization that will qualify as a reorganization under Code Section 368(a)(1)(E). A bondholder exchanges a bond worth $950 with a face value of $1,000 and a basis of $875 for voting preferred stock with a par value of $1,200 and a worth of $1,000. The bondholder, on receipt of the stock, will have:
a. Gain: $0; basis: $875
b. Gain: $125; basis: $1,000
c. Gain: $167 ($200 × ($1,000/$1,200)); basis: $1,042
d. Gain: $75; basis: $950
8. Purr Cat Food, Inc. has earnings and profits of $50,000 and acquires Wag Dog Food, Inc. in a statutory merger that qualifies as an "A" reorganization. Wag Dog Food, Inc. has earnings and profits of $40,000. Soon after the merger, Purr Cat Food, Inc. distributes $60,000 to its shareholders, old and new. The amount of the distribution taxable as a dividend is
a. $40,000.
b. $50,000.
c. $60,000.
d. The "old" shareholders in Wag Dog Food, Inc. have dividends up to $40,000 but the "old" Purr Cat Food, Inc. shareholders have none.
9. Cattle, Inc. transferred part of its assets to a newly formed corporation, Herd, Inc. Herd, Inc. received assets with a basis of $40,000 and a fair market value of $90,000, but subject to a liability of $55,000. Cattle, Inc. received 100 percent of the stock in Herd, Inc. which Cattle, Inc. distributed to its shareholders in a spin-off that qualified under Code Section 355. Cattle, Inc. must recognize a gain of
a. $50,000.
b. $35,000.
c. $15,000.
d. $0.
10. Bottoms Up, Inc. merged into Flying High Corp. on August 31, 2015 in a transaction that qualified as an "A" reorganization. At that time, Bottoms Up, Inc. had accumulated net operating losses of $240,000. Flying High Corp.'s taxable income without regard to the acquisition this year is $360,000. Assuming Code Section 382 does not apply, the amount of Flying High Corp's taxable income that can be offset by Bottoms Up, Inc.'s net operating loss is
a. $40,000.
b. $120,000.
c. $120,329.
d. $240,000.
11. Abacus, Inc. forms a corporation, Serious, Inc., by transferring 18 percent of Abacus, Inc.'s stock to Serious, Inc. for 100 percent of the stock in Sirius, Inc. Sirius, Inc. acquires 90 percent of the stock of Tyrol, Inc. for its stock in Abacus, Inc. whereupon Serious, Inc. is merged into Tyrol, Inc., with Tyrol, Inc. surviving. Assuming this qualifies meets all of the requirements for one of the following, these transactions may best be described as
a. a Section 351 transfer, followed by a Type B reorganization.
b. a spin-off.
c. the purchase of a subsidiary corporation.
d. a reverse triangular merger.