Week 3 Homework Attempt 1
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Date
Apr 3, 2024
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Question 1
Discussion Question 7-1 (LO. 1)
For each reorganization, provide the letter of its most likely type.
Reorganization
Example: The acquisition by one corporation of another in a stock-for-stock exchange
a. A recapitalization
b. A transfer by a corporation of all or part of its assets because of a bankrup
c. A consolidation
d. A spin-off
e. The acquisition by a corporation of another in a stock-for-asset exchange
f. A change in the state of incorporation from Nevada to Delaware
Question 2
Exercise 7-15 (Algorithmic) (LO. 2)
Rebecca holds 100 shares of Gotchas stock that she purchased for $1,700 several years Gotchas is valued at $37.40 per share and Solis at $3.40 per share.
The exchange of Rebecca’s stock
has no
income tax conse
$1,700
Calculate the total value received for Gotchas stock.
Rebecca receives
1,000 Solis shares valued at
Total value received = $3,400
$340 $3,740
Determine the realized gain of Rececca:
Original purchase price of Gotchas stock = $1,700
Cost basis of Gotchas shares:
Realized gain = Total value received - Original purchase price.
a. What is Rebecca's realized and recognized gain/loss from the reorganization?
b. What is Rebecca's basis in her Solis stock?
Determine the recognized gain/loss from the reorganization:
Recognized gain =
$340
Basis in new stock = Basis in old stock
Question 3
Exercise 7-16 (Algorithmic) (LO. 2)
In a qualifying reorganization, Cato Corporation exchanges $3,790,000 worth of stock an
which have a value of $5,306,000 and a $1,061,200 basis. Firestar distributes the proper
If an amount is zero, enter "0".
Cato recognizes
a gain
of
$758,000 a)Computation of Catos Recognised Gain/loss from the reorganization :
Recognized gain = Market value - Adjusted basis of the property
Firestar recognizes
no gain or loss
of
$0 b)Computation of Firestars Recognised gain/Loss from reorganization :
Since Firestar has distributed the property which is received from Cato. So there will not Question 4
Exercise 7-17 (Algorithmic) (LO. 2)
Townsend, the sole shareholder of Pruett Corporation, has a $228,800 basis in his stock.
He exchanges all of his Pruett stock for $286,000 of Rogers voting common stock plus la
Pruett distributed the land to Townsend. This exchange meets all Code requirements.
If an amount is zero or there is no gain or loss, enter "0".
Townsend recognizes
a gain
of
$57,200 Calculation of Townsend's recognized gain/loss from the reorganization
a. What is Cato's recognized gain/loss from the reorganization?
b. What is Firestar's recognized gain/loss from the reorganization?
a. What is Townsend's recognized gain/loss from the reorganization?
Realized Gain
Recognized Gain
Postponed Gain
$343,200 $57,200 $115,200 $236,000 $57,200 $118,000 $57,200 Price of stock =
$343,200 $57,200 $115,200 Basis in Roger's stock =
$228,800 Rogers Corporation recognizes
a gain
of
$42,900 Pruett Corporation will not report any gain.
The basis in the Rogers stock is
$228,800 and the basis in t
Townsend’s basis in the Roger stock =
$228,800 $57,200 Question 5
Exercise 8-24 (Algorithmic) (LO. 5)
The Parent consolidated group reports the following results for the 2021 tax year.
Entity
Income or Loss
Parent
$70,800 Sub1
($7,080)
Sub2
$28,320 Sub3
$14,160 Do not round any division in your computations. If required, round your answers to neare
Realized gain =
Postponed gain =
b. What is the gain/loss recognized by Pruett Corporation and Rogers Corporation on the
Rogers reported gain = Value of land - Basis of land
c. What is Townsend's basis in the Rogers stock and the land received?
Townsend"s basis in land received =
a. What is the group's consolidated taxable income and consolidated tax liability?
If the relative taxable income method, the consolidated taxable income is
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Consolidated Taxable Income =
$106,200 Marginal Tax Rate =
21%
Consolidated Tax Liability =
$22,302 Entity
Income or Loss
Parent
$13,939 Sub1
$0 Sub2
$5,576 Sub3
$2,788 Total
$22,302 Entity
Separate Taxable Income (A)
Allocation Rate % (B)
Parent
$70,800 62.50%
Sub1
$0 0.00%
Sub2
$28,320 25.00%
Sub3
$14,160 12.50%
Total
$113,280 100%
Calculation of Allocation Rate is as follows:
Parent =
0.625 percent
Sub 2 =
0.25 percent
Sub 3 =
0.125 percent
Question 6
Exercise 8-25 (Algorithmic) (LO. 6)
Clifton Corporation acquired all of the outstanding Gillion stock on January 1, Year 1, for $
Gillion reported a Year 1 taxable loss of $1,184,490, but it generated $1,579,320 of taxa
Compute Clifton's stock basis in Gillion on the last day of each of the indicated tax years
Year 1
$6,712,110 1-Jan
Year 2
$7,896,600 Year 3
$8,674,415 Year 2
Year 3
Question 7
b. If the Parent group has consented to the relative taxable income method, how will the
Exercise 8-26 (Algorithmic) (LO. 8)
Parent and Child corporations have filed on a consolidated basis since the mid-1990s. Th
Operating loss, including the following
$3,050,000
$2,800,000 Charitable contributions
$732,000
$672,000 Net capital gain
$1,342,000
$1,232,000 Dividends received deduction
$549,000
$504,000 What is the Parent group's net operating loss for the year that is available for carryforwa
$2,440,000
Particulars
Amount
Operating loss
$3,050,000
(+) Charitable Contribution
$732,000
(-) Net capital gain
($1,342,000)
operating loss for the year that is available for carryforward
$2,440,000
Question 8
Exercise 8-28 (Algorithmic) (LO. 9)
Parent Corporation's current-year taxable income included $291,600 net income from op
Parent also made a $14,580 charitable contribution. SubCo generated $131,220 income Parent's separate taxable income is
$306,180 SubCo's separate taxable income is
$131,220 $431,568 Long term capital gain =
$23,328 Charitable contribution = $14,580 Total =
$8,748 The consolidated taxable income =
$431,568 a. How much is Parent's separate taxable income?
b. How much is SubCo's separate taxable income?
c. How much is consolidated taxable income?
The consolidated taxable income is
Type
Type B
Type E
ptcy.
Type G
Type A
Type D
Type C
Type F
ago. In a merger of Gotchas into Solis, Inc., Rebecca exchanges her 100 Gotchas shar
equences for Gotchas or Solis.
Holds
100 shares of Gotc
Purchased at
$1,700 Exchanges
100 shares of Gotc
Gotchas valued at
$37.40 Solis valued at
$3.40 $3.40 and
$340 Rebecca’s Gotchas stock value $2,040
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$1,700
nd property valued at $1,516,000 ($758,000 basis) for all of Firestar Corporation's asse
rty received from Cato. The exchange meets all Code requirements.
Worth of Stock
$3,760,000 Property Valued
$1,516,000 .
Basis of Property
$758,000 Assets of Firestar's Value is:
$5,306,000 Basis of Firestar's Assets is:
$1,061,200 .
be any loss.
. and with a fair market value of $57,200 and basis of $14,300. Basis of stock for Pruett
$228,000 He gets in cash
$286,000 .
Fair Market Value is
$57,200 Basis of Rogers
$14,300
Basis in Rogers Stock
$286,000 $57,200 $228,800 $42,900 and Pruett Corporation recognizes
no gain or loss
the land is
$57,200 .
est whole dollar. If an amount is zero, enter "0".
$106,200 and the total consolidated tax liability is
reorganization?
Allocated Tax Liability ($ 22,302)
$13,939
$0
$5,576
$2,788
$22,302
$7,896,600. The parties immediately elected to file consolidated Federal income tax re
able income in Year 2 and $789,660 in Year 3. Gillion paid a $394,830 dividend to Clifto
s.
Year 1
$7,896,600 outstanding stock
Year 1
taxable loss
$1,184,490 Year 2
taxable income
$1,579,320 Year 3
taxable income
$789,660 dividend paid
$394,830 dividend paid
$11,845 e consolidated tax liability be allocated among the Parent and Subsidiaries 1, 2, and 3?
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he group reports the following amounts for the current tax year.
ard?
perations and a $29,160 net long-term capital gain. from operations and incurred a $5,832 short-term capital loss.
Parent Corporation's Taxable Income
Subco
Net Income
$291,600 Net Income
Net Long-Term Gain
$29,160 Short-Term Lo
Charitable Contributions
$14,580
res for 1,000 Solis shares and $340. chas Stock
several years ago
$1,200 chas Stock for
1,000 shares of Solis
and
$340 $240 per share
$26.40 per share
$2.40
ets, of Rogers voting common stock plus land
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s
of
$0 .
$22,302 .
eturns. on in Year 2 and a $11,845 in Year 3.
?
$131,220 oss
$5,832
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