Vol 2 Add'l Test Bank Ch07

Vol 2 Add'l Test Bank Ch07 - Corporations: Reorganizations...

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Reorganizations 7-1 CHAPTER 7 CORPORATIONS: REORGANIZATIONS EXAMINATION QUESTIONS 1. Candace exchanges stocks she owns in Orange Corporation for stock in Lime Corporation plus a bond worth $44,000 (principal amount of $40,000). The exchange is pursuant to a tax-free reorganization of both corporations. Candace paid $250,000 for the stock in Orange four years ago. The Lime stock is worth $350,000. Candace recognizes gain on the transaction of: a. $0. b. $40,000. c. $44,000. d. $100,000. e. None of the above. 2. Melon Corporation gives its voting stock worth $600,000 and a building worth $200,000 with a basis of $150,000 for the assets of Violet Corporation worth $800,000 and basis of $525,000. Violet distributes the stock in Melon Corporation to its sole shareholder. Which, if any, of the following statements regarding this transaction is correct? a. Violet recognizes a gain of $200,000 on the transaction. b. Violet recognizes a gain of $200,000 and Melon recognizes a gain of $50,000 on the transaction. c. Melon recognizes a gain of $50,000 on the transaction. d. Neither Melon nor Violet recognizes gain on the transaction. e. None of the above. 3. Pursuant to a plan of corporate reorganization adopted in the current year, Travis exchanged 1,000 shares of Lavender Corporation common stock which he had purchased for $200,000 for 1,200 shares of Indigo Corporation common stock that have a fair market value of $400,000. As a result of the exchange, Travis's recognized gain and his basis in the Indigo stock are: a. No recognized gain and basis of $200,000. b. No recognized gain and basis of $400,000. c. Recognized gain of $200,000 and basis of $400,000. d. Recognized gain of $200,000 and basis of $200,000. e. None of the above. 4. Joan owns all the stock in Turquoise Corporation. Joan has a basis of $200,000 in the Turquoise stock, which currently has a fair market value of $500,000. Turquoise is merged into Lima Corporation. Joan receives Lima preferred stock worth $200,000 and
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Vol 2 Add'l Test Bank Ch07 - Corporations: Reorganizations...

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