Reference no: EM13501062

1.Robert and Sylvia propose to have their corporation, Wolverine Universal (WU), acquire another corporation, EMU, Inc., in a stock-for-stock Type B acquisition.  The sole shareholder of EMU, Edie Eagle, will receive $400,000 of WU voting stock in the transaction.  Edie’s tax basis in her EMU stock is $100,000.

 a. What amount of gain or loss does Edie recognize if the transaction is structured as a stock-for-stock Type B acquisition?

b.What is Edie’s tax basis in the WU stock she receives in the exchange?

c.What is the tax basis of the EMU stock held by WU after the exchange?

2.Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions, Inc. (WFI).  After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet.

FMV     Tax-Adjusted Basis Appreciation

Cash $  200,000 $     200,000

Building     50,000        10,000       40,000

Land   150,000        90,000       60,000

Total $  400,000 $     300,000 $    100,000

Under the terms of the agreement, Shauna will receive the $200,000 cash in exchange for her 50 percent interest in WFI.  Shauna’s tax basis in her WFI stock is $50,000.  Danielle will receive the building and land in exchange for her 50 percent interest in WFI.  Danielle’s tax basis in her WFI stock is $100,000.  Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation.

a. What amount of gain or loss does WFI recognize in the complete liquidation?

b.What amount of gain or loss does Shauna recognize in the complete liquidation?

c.What amount of gain or loss does Danielle recognize in the complete liquidation?

d.What is Danielle’s tax basis in the building and land after the complete liquidation?

3.Tiffany and Carlos decided to liquidate their jointly owned corporation, Royal Oak Furniture (ROF).  After liquidating its remaining inventory and paying off its remaining liabilities, ROF had the following tax accounting balance sheet.

   FMV     Tax-adjusted Basis Appreciation (Depreciation)

Cash $  200,000 $     200,000

Building     50,000        10,000      40,000?

Land   150,000      200,000     (50,000)

Total $  400,000 $     410,000 $    (10,000)

Under the terms of the agreement, Tiffany will receive the $200,000 cash in exchange for her 50 percent interest in ROF.  Tiffany’s tax basis in her ROF stock is $50,000.  Carlos will receive the building and land in exchange for his 50 percent interest in ROF.  His tax basis in the ROF stock is $100,000.  Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation.

a. What amount of gain or loss does ROF recognize in the complete liquidation?

b.What amount of gain or loss does Tiffany recognize in the complete liquidation?

c.What amount of gain or loss does Carlos recognize in the complete liquidation?

d.What is Carlos’s tax basis of the building and land after the complete liquidation?

e.What amount of gain or loss does ROF recognize in the complete liquidation?

f.What amount of gain or loss does Tiffany recognize in the complete liquidation?

g.What amount of gain or loss does Carlos recognize in the complete liquidation?

h.What is Carlos’s tax basis in the building and land after the complete liquidation?

4.Jefferson Millinery, Inc. (JMI) decided to liquidate its wholly-owned subsidiary, 8 Miles High, Inc. (8MH).  8MH had the following tax accounting balance sheet.

   FMV     Tax-Adjusted Basis Appreciation

Cash $  200,000 $     200,000

Building     50,000        10,000       40,000

Land   150,000        90,000       60,000

Total $  400,000 $     300,000 $    100,000

a. What amount of gain or loss does 8MH recognize in the complete liquidation?

b.What amount of gain or loss does JMI recognize in the complete liquidation?

c.What is JMI’s tax basis in the building and land after the complete liquidation?

5. Jefferson Millinery, Inc. (JMI) decided to liquidate its wholly-owned subsidiary, 8 Miles High, Inc. (8MH).  8MH had the following tax accounting balance sheet.

   FMV     Tax-Adjusted Basis Appreciation

Cash $  200,000 $     200,000

Building     50,000        10,000       40,000

Land   150,000      200,000     (50,000)

Total $  400,000 $     410,000 $    (10,000)

a. What amount of gain or loss does 8MH recognize in the complete liquidation?

b.What amount of gain or loss does JMI recognize in the complete liquidation?

c.What is JMI’s tax basis in the building and land after the complete liquidation?