Question 1

Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $500,000. The corporation's basis in the Tea Company stock was $300,000. The land had a basis to Tea Company of $600,000. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

Accepted Answer

A)   $200,000 gain recognized and a basis in the land of $600,000
B)   $200,000 gain recognized and a basis in the land of $500,000
C)   No gain recognized and a basis in the land of $600,000
D)   No gain recognized and a basis in the land of $300,000E) A) and D)
F) B) and C)

Question 2

Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $500,000 plus $500,000 in cash. Celeste's tax basis in the Supply Chain stock was $1,200,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives?

Accepted Answer

A)   $200,000 loss recognized and a basis in Marketing stock of $1,200,000
B)   No loss recognized and a basis in Marketing stock of $1,200,000
C)   $200,000 loss recognized and a basis in Marketing stock of $700,000
D)   No loss recognized and a basis in Marketing stock of $700,000E) A) and B)
F) A) and C)

Question 3

Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $100. What is the amount realized by Camille in the exchange?

Accepted Answer

A)   $1,200
B)   $1,100
C)   $850
D)   $750E) A) and B)
F) C) and D)

Question 4

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for-stock exchange. In exchange, he received stock in Apricot with a fair market value of $200,000. Julian's tax basis in the Lemon stock was $400,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

Accepted Answer

A)   $200,000 loss recognized and a basis in Apricot stock of $200,000
B)   No loss recognized and a basis in Apricot stock of $400,000
C)   $200,000 loss recognized and a basis in Apricot stock of $400,000
D)   No loss recognized and a basis in Apricot stock of $200,000E) A) and B)
F) None of the above

Question 5

Francine incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases. $$\begin{array} { l r l r } 
& { \text { FMV } } & & { \text { Adjusted basis } } \
\hline
\text { Inventory } & \$ 30,000 & & \$ 10,000 \
\text { Building } & 130,000 & & 80,000 \
\text { Land } & \underline { 50,000 } & & \underline { 100,000 } \
\text { Total } & \$ 210,000 & & \$ \underline { \underline { 190,000 } }
\end{array}$$ The corporation also assumed a mortgage of $60,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $150,000.
What amount of gain or loss does Francine recognize on the transfer of the property to her corporation?

Accepted Answer

Francine does not recognize an...

Question 6

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Accepted Answer

A)   $800
B)   $600
C)   $550
D)   $450E) None of the above
F) B) and D)

Question 7

What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

Accepted Answer

Laura recognizes gain of $260,000 on the...

Question 8

What amount of gain or loss does Amelia recognize in the complete liquidation?

Accepted Answer

Amelia has a taxable transacti...

Question 9

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Accepted Answer

A)   Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value.
B)   Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value.
C)   Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of non-capital assets.
D)   Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates.E) C) and D)
F) A) and C)

Question 10

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Accepted Answer

A)   All complete liquidations are taxable to the shareholders.
B)   Complete liquidations are taxable to all individual shareholders.
C)   Complete liquidations are taxable to all corporate shareholders owning stock of the liquidated corporation representing less than 80 percent or more of voting power and value.
D)   Complete liquidations are tax deferred to corporate shareholders owning stock of the liquidated corporation representing 80 percent or more of voting power and value.E) A) and B)
F) C) and D)

Question 11

What amount of gain or loss does Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation?

Accepted Answer

Michelle recognizes gain of $200,000 on ...

Question 12

Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Accepted Answer

A)   Liabilities assumed by a corporation on a section 351 transfer are always treated as boot.
B)   Liabilities assumed by a corporation on a section 351 transfer are never treated as boot.
C)   Liabilities assumed by a corporation on a section 351 transfer are treated as boot if the total liabilities assumed exceed the total basis of the assets transferred.
D)   Liabilities assumed by a corporation on a section 351 transfer are treated as boot if there is no business purpose for the assumption of the liabilities by the corporation.E) A) and B)
F) B) and C)

Question 13

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $500,000 plus $500,000 in cash. Simone's tax basis in the Purple stock was $200,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Accepted Answer

A)   $800,000 gain recognized and a basis in Plum stock of $1,000,000
B)   $800,000 gain recognized and a basis in Plum stock of $500,000
C)   $500,000 gain recognized and a basis in Plum stock of $500,000
D)   $500,000 gain recognized and a basis in Plum stock of $200,000E) A) and B)
F) A) and C)

Question 14

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

Accepted Answer

A) True 
 B)False

Question 15

A liquidated corporation always recognizes gain realized in a complete liquidation.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Accepted Answer

A)   The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals its fair market value.
B)   The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
C)   The shareholder recognizes gain and loss on the transfer and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
D)   The shareholder does not recognize gain and loss on the transfer and the corporation's basis in the property transferred equals zero.E) A) and B)
F) A) and D)

Question 17

The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value.

Accepted Answer

A) True 
 B)False

Question 18

What amount of gain or loss does Pennsylvania recognize in the complete liquidation?

Accepted Answer

Pennsylvania has a taxable tra...

Exam 19: Corporate Formation, Reorganization, and Liquidation

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

Correct Answer
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What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

Correct Answer
verified
Laura recognizes gain of $260,000 on the...
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Correct Answer
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Francine does not recognize an...
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Correct Answer
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The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value.

Correct Answer
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Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Correct Answer
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Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Correct Answer
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Correct Answer
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What amount of gain or loss does Pennsylvania recognize in the complete liquidation?

Correct Answer
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Pennsylvania has a taxable tra...
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Correct Answer
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What amount of gain or loss does Amelia recognize in the complete liquidation?

Correct Answer
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Amelia has a taxable transacti...
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Correct Answer
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Correct Answer
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A liquidated corporation always recognizes gain realized in a complete liquidation.

Correct Answer
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Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Correct Answer
verified

Correct Answer
verified

What amount of gain or loss does Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation?

Correct Answer
verified
Michelle recognizes gain of $200,000 on ...
View Answer

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Correct Answer
verified

Exam 19: Corporate Formation, Reorganization, and Liquidation

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction.

Correct AnswerverifiedShow Answer

What amount of gain or loss does Laura recognize in the complete liquidation and what is Laura's tax basis in the building and land after the complete liquidation?

Correct AnswerverifiedLaura recognizes gain of $260,000 on the...View AnswerShow Answer

Correct AnswerverifiedFrancine does not recognize an...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The tax basis of property received by a noncorporate shareholder in a complete liquidation will be the property's fair market value.

Correct AnswerverifiedShow Answer

Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?

Correct AnswerverifiedShow Answer

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What amount of gain or loss does Pennsylvania recognize in the complete liquidation?

Correct AnswerverifiedPennsylvania has a taxable tra...View AnswerShow Answer

Correct AnswerverifiedShow Answer

What amount of gain or loss does Amelia recognize in the complete liquidation?

Correct AnswerverifiedAmelia has a taxable transacti...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A liquidated corporation always recognizes gain realized in a complete liquidation.

Correct AnswerverifiedShow Answer

Which of the following statements best describes the tax results to a shareholder in a section 351 transaction when liabilities on property transferred to the corporation are assumed by the corporation?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What amount of gain or loss does Michelle recognize in the complete liquidation and what is her tax basis in the building and land after the complete liquidation?

Correct AnswerverifiedMichelle recognizes gain of $200,000 on ...View AnswerShow Answer

Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing shareholder?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Laura recognizes gain of $260,000 on the...
View Answer

Correct Answer
verified
Francine does not recognize an...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Pennsylvania has a taxable tra...
View Answer

Correct Answer
verified

Correct Answer
verified
Amelia has a taxable transacti...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Michelle recognizes gain of $200,000 on ...
View Answer

Correct Answer
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