chapters 17 18 19 multiple choice 451 fall 2018.docx

chapters 17 18 19 multiple choice 451 fall 2018.docx -...

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Chapter 17 Corporate Reorganizations MULTIPLE CHOICE QUESTIONS—CHAPTER 17 1. Holly Wreath, a shareholder in the acquired corporation, turned in 100 shares of common stock with a basis of $4,200. In return she received voting convertible preferred stock 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 2. The Blues 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 its stock and the other half of its assets to another new corporation, Minimum, Inc., also in exchange for its stock. Both brothers turn in their shares in Raiders, with one brother receiving all of the stock in Doolittle, and the other brother receiving all of the stock in Minimum. 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 3. Pursuant to a Type C reorganization, Alice Lewis exchanged 1,000 shares in Blades, Inc., with a basis of $11,000 and a value of $9,000 for "new" stock in Razors, Inc. worth $8,500 and cash of $1,000. Blades earnings and profits were significant. Alice must recognize: 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
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4. Trampolines, Inc. transfers all its assets to a new corporation, Trogs, Inc., in exchange for its voting stock. The shareholders of Trampolines turn in their stock for all the shares of Trogs. 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 5. Ivory, Inc. acquires all the assets of Mammoth, Inc. If the consideration paid is as follows, which transaction qualifies as a Type C reorganization? a. Voting common stock in Ivory worth $200,000 and the assumption of $800,000 of Mammoth's liabilities. b. Voting convertible preferred stock in Ivory worth $550,000 and warrants worth $450,000 to purchase stock in Ivory's subsidiary. c. Voting common stock in Ivory worth $750,000, assumption of liabilities of Mammoth of $200,000, plus $50,000 in cash. d. Nonvoting convertible preferred stock in Ivory worth $500,000 and cash of $500,000. 6. As part of a Type A reorganization, Blanc, Inc. transferred property with a value of $10 million and a basis of $7 million for $8 million worth of stock in White, Inc. and $2 million worth of two year notes. The White stock and notes are immediately distributed to the Blanc shareholders and their "old" stock is cancelled. As a result of this, Blanc must recognize: a. Gain of $3 million b. No gain or loss c. Gain of $2 million d. Gain of $2 million over a two-year period 7. 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). Basta's assets had a value of $700,000 and a basis of $150,000. What is Arawak's basis in the acquired assets?
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