Will the proposed plan work and why or why not

Assignment Help Accounting Basics

Reference no: EM132687890

Your client, White Corporation, has done well since its formation 20 years ago. This year, it recognized a $50 million capital gain from the sale of a subsidiary. White's CEO has contacted you to discuss a proposed transaction to reduce the tax on the capital gain. Under the proposal, White will purchase all of the common stock in Purple Corporation for $200 million. Purple is a profitable corporation that has $63 million in cash and marketable securities, $137 million in operating assets, and approximately $280 million in E & P. After its acquisition, Purple will distribute $50 million in cash and marketable securities to White. Due to the 100% dividends received deduction, no taxable income results to White from the dividend. White will then resell Purple for $150 million. The subsequent sale of Purple generates a $50 million capital loss [$200 million (stock basis) - $150 million (sales price)]. The loss from the stock sale can then be used to offset the preexisting $50 million capital gain.

Problem 1: Will the proposed plan work? Why or why not?

Reference no: EM132687890

Questions Cloud

Record the cash received for interest revenue and receivable : Record the purchase of U.S. Treasury bonds for cash and accrued interest. Record the cash received for interest revenue and receivable

What are the tax consequences to speed and bill : What are the tax consequences to Speed and Bill if this is a stock redemption and Speed redeems 40 of Bill's shares in exchange for the land?

Calculate the partner basis in the assets distributed : Calculate the partner's basis in the assets distributed to that partner and the partner's post-distribution basis in her partnership interest.

Explain what working capital is : Explain what working capital is and how it is computed. What are current liabilities? What are liabilities? What is equity? What are assets?

Will the proposed plan work and why or why not : White Corporation, Will the proposed plan work? Why or why not? This year, it recognized a $50 million capital gain from the sale of a subsidiary.

When should make the general journal june : On the 22nd June 20X3 the company determined a final dividend. When should make the general journal? 22nd June? or 14th July? or 1st October?

What is the cash conversion period : The receivables conversion period is 23 days. The accounts payable conversion period is 28 days. What is the cash conversion period?

How many units of each product would be sold at break-even : Dragon Sports Inc. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

Find how much would operating income increase : Find How much would operating income increase if same-store sales increased by $1,400 million for the coming year, with no change in the contribution margin?

User Account

All Pages