659. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #21 Rabbit Corporation and Fox Corporation would like to merge into one company. Rabbit’s only asset is a nontransferable chemical process that has a value of $300 000 and Rabbit has liabilities of $100 000. Fox has the manufacturing plant and experience in the production of Rabbit’s chemical process. Its manufacturing plant has a value of $900 000 with a mortgage of $200 000. Which type of reorganization would be the most appropriate for Rabbit and Fox? a. “Type A” consolidation reorganization. b. “Type B” reorganization. c. “Type C” reorganization. d. Acquisitive “Type D” reorganization. e. None of the above is appropriate. 660. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #22 In which type of divisive corporate reorganization do the shareholders receive stock in another corporation without relinquishing any of their stock in the original corporation? a. “Type A” consolidation reorganization. b. “Type D” split-up reorganization. c. “Type D” split-off reorganization. d. “Type D” spin-up reorganization. e. Some other type of reorganization. 661. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #23 Dirty Corporation has owned two chemical manufacturing facilities for the last 20 years. One facility is located in Oklahoma while the other is in Oregon. There have been some environmental investigations at the Oregon facility. Therefore Dirty creates a new corporation called Clean and places the assets of the Oregon plant into Clean in exchange for all of Clean’s stock. Dirty distributes this stock proportionately to its shareholders in exchange for 40% of their Dirty stock. How will this transaction be treated for tax purposes? a. As a split-up “Type D” reorganization. b. As a split-off “Type D” reorganization. c. As a spin-off “Type D” reorganization. d. This transaction does not qualify as a reorganization because Dirty does not have two active lines of business. e. None of the above. 662. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #24 Contra Corporation is owned 50% by Terry and 50% by Sammy. Due to news articles damaging Contra’s reputation Terry and Sammy decide to liquidate Contra which has been in existence for 4 years. They create Alpha and Beta Corporations to receive all of the manufacturing assets of Contra’s two picture frame plants. Alpha receives the urban plant manufacturing assets and Beta receives the country manufacturing plant. Terry receives 60% Alpha stock and 40% of the Beta stock and Sammy receives 40% Alpha stock and 60% of the Beta stock. Terry and Sammy turn in their Contra stock and Contra then liquidates. Assuming all other requirements are met how will this transaction be treated for tax purposes? a. As a taxable transaction. b. As a “Type A” deconsolidation. c. As a “Type D” split-off reorganization. d. As a “Type D” split-up reorganization. e. None of the above. 663. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #25 Vintage Corporation has four shareholders: Robin Quinton Paula and Orvil. Paula and Orvil started the business 10 years ago and Robin and Quinton bought their stock 6 years ago. Vintage’s historical business is buying and selling antiques. When Robin and Quinton joined Vintage it added a new business trading in collectibles. Lately there has been a disagreement about the future of Vintage. Orvil and Quinton are not interested in collectibles but Robin and Paula enjoy this part of the business. To resolve this issue Paula suggests that two new corporations be created Antique and Collectible. Antique would receive all of the assets of the antique part of the business and Collectible would receive all of the assets of the collecting part of Vintage. All of the stock of these two corporations would be received by Vintage and distributed to the appropriate shareholders. Vintage would then terminate. a. The transaction qualifies as a spin-off “Type D” reorganization. b. The transaction qualifies as a split-off “Type D” reorganization. c. The transaction qualifies as a split-up “Type D” reorganization. d. The transaction is taxable. e. None of the above. 664. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #26 ScottishCo is owned by Gordon Bryson and his four nieces and nephews. Gordon owns all the voting stock. He wants to relinquish control; accordingly ScottishCo redeems all of Gordon’s voting common stock and issues him preferred stock and $50 000 in bonds. The nonvoting preferred shares owned by the nieces and nephew are exchanged for voting common stock. Which of the following statements is correct? a. None of this transaction is taxable because it qualifies as a “Type E” reorganization. b. The exchange of common for preferred is not taxable but the exchange of preferred stock for common stock is taxable. c. The exchange of common stock for a bond is taxable. d. All of these transactions are taxable. e. None of the above statements is correct. 665. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #27 Qadira exchanges 40% of her common stock for 80% of newly issued preferred stock in the Pinto Corporation. There was no Pinto preferred stock previously outstanding and Qadira received only stock. The other 20% of the preferred stock was received by another shareholder solely in exchange for 10% of his common stock in Pinto. How is this transaction treated for tax purposes? a. This is a taxable transaction. b. This transaction qualifies as a “Type E” reorganization. c. This transaction qualifies as a “Type B” reorganization. d. This transaction qualifies as like-kind exchange. e. None of the above. 666. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #28 Western Inc. is a corporation located in California. In June of the current year Western moves to Georgia and changes its name to Southern Corporation. Its sole shareholder Dharma exchanges all of her stock in Western and receives all of the stock in Southern. a. This transaction qualifies as a “Type F” reorganization. b. This transaction qualifies as a “Type E” reorganization. c. This move has no tax significance for Federal purposes. d. This is treated as a liquidation of Western and incorporation of Southern. Thus gain can be recognized on the liquidation of Western. e. None of the above. 667. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #29 Loser Corporation has outstanding bonds of $800 000 and assets valued at $600 000. It also has a $200 000 NOL and capital loss carryovers of $160 000. Loser is solely owed by Dai Won. Loser is restructured and the successor company is LouderCo. Which of the following statements is false? a. This transaction qualifies as a “Type G” reorganization. b. LouderCo can utilize the full amount of Loser’s NOL and capital loss carryover if it elects to reduce the basis in the transferred depreciable assets by the amount of the debt relief it receives. c. Dai Won must receive a controlling interest in LouderCo for the restructuring to qualify as a tax-free reorganization. d. The bondholders of Loser become shareholders of LouderCo. e. All of the above statements are true. 668. CHAPTER 7—CORPORATIONS: REORGANIZATIONS Question MC #30 In which type of reorganization could bonds and other liabilities be exchanged for stock and not be treated as boot? a. A “Type G” reorganization. b. A “Type E” reorganization. c. An acquisitive “Type D” reorganization. d. A “Type A” consolidation. e. None of the above.
