1. ABC Inc. had current earnings and profits of $50,000 on June 2, 2016 when it made a nonliquidating distribution to an individual shareholder of land that the corporation held for several years as an investment. On the date the land was distributed, ABC Inc.'s adjusted basis in the land was $10,000, the fair market value of the land was $50,000, and the land was encumbered by a $30,000 mortgage. The liability was assumed by the shareholder. There were no other transactions that might affect ABC Inc.'s earnings and profits for the year. What was the amount of ABC Inc.'s earning and profits at the end of the year?
a. $30,000.
b. $50,000.
c. $60,000.
d. $70,000.
e. none of the above.
2. EFG Inc. distributed land to an individual shareholder in a nonliquidating distribution. On the date the land was distributed, EFG Inc.'s adjusted basis in the land was $20,000, the fair market value of the land was $75,000, and the land was encumbered by a $35,000 mortgage, which liability was assumed by the shareholder. The corporation's earnings and profits were $245,000 on the last day of the year in which the distribution without taking into effect any impact of the distribution on the corporation's earnings and profits. As a result of the distribution, how much is the amount of dividend income to the shareholder, and what is the shareholder's basis in the distributed property?
a. Dividend income of $20,000 and basis of $20,000.
b. Dividend income of $40,000 and basis of $20,000.
c. Dividend income of $40,000 and basis of $40,000.
d. Dividend income of $40,000 and basis of $75,000.
3. XYZ Corporation had one shareholder. Pursuant to a plan of liquidation, XYZ Corporation distributed land to its sole shareholder, Jane, as a liquidating distribution. At the time of the distribution, the land had a fair market value of $120,000 and XYZ Corporation's adjusted basis in the land was $100,000. The land was encumbered by a $140,000 mortgage, and the mortgage was assumed by the shareholder. How much gain did XYZ Corporation recognize as a result of the distribution?
a. 0.
b. $20,000.
c. $40,000.
d. $100,000.
4. Pursuant to a plan of liquidation, Tom received a liquidating distribution from Furniture Corporation as part of the redemption of all of the Furniture Corporation's stock and the complete liquidation of Furniture Corporation. Tom's basis for his ABC Corporation stock was $10,000. In exchange for his stock, Tom received a payment of $15,000 and property that had an adjusted basis to Furniture Corporation of $10,000, a fair market value of $25,000, and that was encumbered by a $12,000 mortgage which Tom assumed. How much gain did Tom recognize as a result of this transaction?
a. $3,000.
b. $18,000.
c. $30,000.
d. $42,000.
e. None of the above.
5. The stock of Strength Corp. is owned equally by two sisters. During 2010, they transferred land (which had a basis of $300,000 and a fair market value of $320,000) as a contribution to capital of Strength Corp. During April of 2016, Strength Corp. adopted a plan of complete liquidation and in June 2016 pursuant to the plan of liquidation made a pro rata distribution of land back to the sisters. At the time of the liquidating distribution, the land had a fair market value of $180,000. What amount of loss is allowable to Strength recognized Corp. with respect to the distribution of land?
a. $0.
b. $20,000.
d. $120,000.
d. $140,000.
e. We do not have sufficient information.
6. Corporate dividends are paid
a. at the discretion of the board of directors.
b. when there's plenty of money to do so.
c. at least every six months.
d. upon demand by a majority of shareholders entitled to vote.
7. Large Corp. decides to buy all of the assets of Modest Corp.
a. approval by the majority of shareholders of both corporations will be necessary to complete the transaction.
b. approval by the majority of shareholders only of Modest Corp. will be necessary to complete the transaction.
c. Large Corp. must assume all the liabilities of Modest Corp. when Large Corp. purchases all of the assets of Modest.
d. The U.S. Justice Department's approval is always required to avoid anti-trust claims.
8. Pursuant to a Type C reorganization, Alice exchanged 1,000 shares in Blades, Inc., with a basis of $11,000 and a fair market value of $9,000 for stock in Razors, Inc. worth $8,500 and cash of $1,000. Blades earnings and profits were substantial. Alice recognizes
a. dividend income of $1,000.
b. long-term capital loss of $1,500.
c. long-term capital gain of $1,000.
d. no gain or loss.
9. Trampolines, Inc. transfers all its assets to a new corporation, Trogs, Inc., in exchange for voting stock of Trogs, Inc. The shareholders of Trampolines, Inc. turn in their Trampolines, Inc. stock for all the shares of Trogs, Inc. There is a business purpose for the transaction, and Trogs, Inc. will use all of Trampolines, Inc. assets in the same business in which Trampolines, Inc. was engaged. The transaction meets the definition of
a. a Type C reorganization.
b. both a Type C and a Type D reorganization.
c. a Type C, D, and F reorganization.
d. a Type A, C, D, and F reorganization.
10. Ivory, Inc. acquires all the assets of Mammoth, Inc. If the consideration paid is as follows, which transaction qualifies as a Type C reorganization, assuming all other requirements are met to qualify as a reorganization under Code Section 368(a)(1)(C)?
a. Voting common stock of Ivory, Inc. worth $200,000 and the assumption of $800,000 of Mammoth Inc.'s liabilities.
b. Voting convertible preferred stock of Ivory, Inc. with a fair market value of $550,000 and warrants with a fair market value of $450,000 to purchase stock in Ivory, Inc.'s subsidiary.
c. Voting common stock in Ivory, Inc. with a fair market value of $750,000 and assumption of liabilities of Mammoth Inc. of $200,000, plus $50,000 in cash.
d. Nonvoting convertible preferred stock in Ivory, Inc. worth $500,000 and cash of $500,000.
11. The acquiring corporation does not obtain the target corporation's tax attributes in a
a. Type A reorganization.
b. Type B reorganization.
c. Code Section 332 liquidation.
d. The acquiring corporation obtains the target's tax attributes in all of the above.