Question

5 Andi Corporation transfers assets with an adjusted basis of $200,000 and an FMV of 300,000 to Bella Corporation in exchange for $300,000 of Bella Corporation stock as part of a tax-free reorganization. The Bella stock had been purchased from its shareholders one year earlier for $250,000. How much gain do Andi and Bella Corporations recognize on the asset transfer? A) Andi S0 B) Andi $0 C) Andi $100,000 D) Andi s100,000 Page Ref: C: 7-14 and 7-15. (Slide 7-12). Bella SO Bella $50,000 Bella Bella $50,000 36. Mitsubishi Corporation acquires all of the assets of Pontiac Corporation using only its voting stock. Pontiac Corporation distributes the Mitsubishi stock to its shareholders pursuant to its liquidation. After the acquisition, Pontiac Corporation's shareholders own 20% of the Mitsubishi stock (by voting power and value). The transaction is classified as a A) Type B reorganization. B) Type C reorganization. C) Type D reorganization. D) The transaction does not qualify as a tax-free reorganization. Page Ref: C:7-25. (Slide 32). 37. Which of the following definitions of Sec. 338 property classes is not correct? A) Class I: cash, demand deposits, and similar accounts in banks, savings and loan associations, etc. B) Class II: actively traded personal property such as publicly traded securities C) Class III: covenants not to compete, similar restrictions on trade, etc. D) Class IV: inventory or other property held primarily for sale to customers Page Ref:C: 7-8 and 7-9. (Slide 7-9)

Answer 1

35. Option A, Andi $0 , Bella $0

Reason: since, minimum stock ownership rules are met, no gain or loss is recognized.

36. Option B, type c reorganization

37. Option C, Class III: covenants not to compete, similar restrictions on trade, etc.