PTS 1 DIF 1 REF p 6 24 to 6 27 OBJ 5 NAT AICPA FN Measurement AACSB Analytic

Pts 1 dif 1 ref p 6 24 to 6 27 obj 5 nat aicpa fn

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PTS: 1 DIF: 1 REF: p. 6-24 to 6-27 OBJ: 5 NAT: AICPA FN-Measurement | AACSB Analytic MSC: 5 min 41. ANS: A In distributions from a subsidiary corporation to a minority shareholder, pursuant to a § 332 parent-subsidiary liquidation, gains (but not losses) are recognized. Thus, Cardinal recognizes a gain of $35,000 on the distribution of Asset B to Samuel [$80,000 (fair market value ) – $45,000 (basis in Asset B)]. Samuel’s tax consequences are governed under § 331 where sale or exchange treatment results in a recognized gain of $10,000 [$80,000 (fair market value of Asset B) – $70,000 (basis in stock)]. The liquidating distribution of Asset A to Blue Jay is pursuant to a § 332 parent-subsidiary liquidation; thus, Cardinal does not recognize any gain on the distribution, and Blue Jay takes a carryover basis in the asset, or $450,000. PTS: 1 DIF: 3 REF: p. 6-23 to 6-26 OBJ: 4 | 5 NAT: AICPA FN-Measurement | AACSB Analytic MSC: 5 min 42. ANS: C Penguin recognizes a gain of $5,000 [$100,000 (value of land) – $95,000 (basis in bonds)]. Finch recognizes no gain or loss on distributions pursuant to a § 332 liquidation, even if property is transferred in satisfaction of indebtedness to Penguin. PTS: 1 DIF: 2 REF: Example 36 | Example 37 OBJ: 5 NAT: AICPA FN-Measurement | AACSB Analytic MSC: 5 min
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ID: A 17 43. ANS: D Brown recognizes a gain of $40,000 ($200,000 fair market value – $160,000 basis) on the distribution of the securities to Susanna, a minority shareholder. Susanna recognizes a gain of $45,000 ($200,000 fair market value of securities – $155,000 basis in Brown stock) and her basis in the securities is their fair market value on the date of distribution, or $200,000. The liquidating distribution to Orange is governed by § 332, resulting in no gain or loss recognition to either Brown or Orange and a $970,000 carryover basis in the land to Orange. PTS: 1 DIF: 2 REF: p. 6-23 to 6-26 OBJ: 4 | 5 NAT: AICPA FN-Measurement | AACSB Analytic MSC: 5 min 44. ANS: C Property received by a parent corporation in a complete liquidation of its subsidiary under § 332 has the same basis the property had in the hands of the subsidiary, or $1.1 million. The parent’s basis in the stock of the liquidated subsidiary disappears. PTS: 1 DIF: 1 REF: p. 6-26 | Example 39 OBJ: 5 NAT: AICPA FN-Measurement | AACSB Analytic MSC: 5 min 45. ANS: A Dove Corporation is treated as having sold its assets on the qualified stock purchase date. Dove is treated as a new corporation as of the day following the qualified stock purchase date. Goldfinch will take a carryover basis in the assets equal to Dove’s stepped-up or -down basis in the assets. The deemed sale that results from a § 338 election can result in recognized gain or loss for the subsidiary (Dove). PTS: 1 DIF: 2 REF: p. 6-27 | p. 6-28 | Concept Summary 6.2 OBJ: 5 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 5 min 46. ANS: D The parent corporation makes the § 338 election. To count towards the 80% qualified stock purchase requirement, the stock must be acquired in a taxable transaction and within a 12-month period. The subsidiary may, but need not, be liquidated.
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