ch 19 HW

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Chemistry

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May 12, 2024

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CH 19 HW answers Gain realized in a sales transaction is defined as the excess of the amount realized over the adjusted basis of the property that is sold= TRUE Martin defers $500 of gain realized in a §351 transaction. The stock he receives in the exchange has a fair market value of $900. Martin’s tax basis in the stock will be $500. = FALSE Martin defers the $500 realized gain ($900 amount realized less $400 adjusted basis) so his stock basis is $400. Stock received in exchange for services provided to the corporation in the formation of the corporation can never be counted in determining if the control test is met for §351 purposes = FALSE. Stock received in exchange for services in a §351 exchange can be counted in determining if the shareholder also contributes property in the exchange. To receive tax deferral in a §351 transaction, an individual shareholder must own 80 percent or more of the corporation after the transaction= FALSE The control test is based on the percentage of shares (voting power and share count) contributed by the aggregate ownership of the group of shareholders who contribute property in the transaction. A taxable acquisition (e.g., cash in exchange for the assets of the target corporation) results in a step-up in the basis of the acquired assets = TRUE The courts require the acquired shareholders receive some equity in the acquiring corporation in exchange for their target stock to qualify as an "A" reorganization = TRUE The requirements for tax deferral in a stock-for-stock "B reorganization" and a reverse triangular Type A merger are the same = FALSE Both B reorgs and reverse triangular mergers require that the target shareholders receive voting stock but the B reorg limits the consideration to stock while the reverse triangular merger requires voting stock for control (80%) but the remaining consideration can include boot. A corporation that is a shareholder of a 2 nd 2nd corporation will always defer gains realized when the 2 nd 2nd corporation is completely liquidated= FALSE The corporate shareholder must defer gains and losses if the shareholder meets the control test (80% of vote and value) beginning with the adoption of the liquidation plan and ending with plan completion of the plan. Amelia transfers property with a tax basis of $500 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $800 in a transaction that qualifies for deferral under §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? ANSWER = $500 The tax basis of the property to the corporation equals Amelia's tax basis (a carryover basis) without adjustment for the liability assumed. Alternatively, the tax basis equals the property's fair market value of $900 less the gain deferred of $400. Emily transferred 100 percent of her stock in Nelson Company to Admiral Corporation in an “A” reorganization. In exchange she received stock in Admiral with a fair market value of $200,000 plus $100,000 in cash. Emily’s tax basis in the Nelson stock was $50,000. What amount of gain, if any, does Emily recognize in the exchange and what is her basis in the Admiral stock she receives? ANSWER = $100,000 gain recognized and a basis in the Admiral stock of $50,000. Explanation Gain recognized is $100,000, the lesser of gain realized of $250,000 or cash received ($100,000). The stock basis is the carryover basis of $50,000 plus gain recognized of $100,000 less cash received of $100,000. If Emily sells the stock for $200,000, she will recognize gain of $150,000, an amount equal to the gain deferred on the exchange.

CH 19 HW answers Cubs Incorporated was completely liquidated. In the exchange for his 20 percent interest, Ross received land with a fair market value of $200,000. Ross’s basis in the Cubs stock was $100,000. The land had a basis to Cubs Incorporated of $50,000. What amount of gain does Ross recognize in the exchange and what is his basis in the land he receives? ANSWER = The exchange is taxable. Ross recognizes the full amount of gain of $100,000 ($200,000 − $100,000) and receives a basis in the land equal to the land’s fair market value of $200,000. Hawk Company was completely liquidated. In the exchange for its 80 percent interest, Eagle Corporation received land with a fair market value of $500,000. Eagle’s tax basis in the Hawk stock was $600,000. The land had a tax basis to Hawk Company of $800,000. What amount of loss does Hawk recognize in the exchange, if any, and what is Eagle’s tax basis in the land it receives? ANSWER = Hawk does not recognize the loss of $300,000 because the liquidation is tax- deferred to Eagle. Eagle’s tax basis in the land is equal to Hawk’s tax basis in the land (a carryover basis).

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