Question #57 of 85 Question ID: 1251849Mimi has completed a preferred stock recapitalization of a business that had been solely owned by her. She retained all preferred shares in the new business entity and gifted all nonvoting common shares to her three children in equal shares. Her preferred shares have a fixed liquidation value and a cumulative right to a fixed amount of income.Which of the following are correct statements regarding the effect of this transaction upon the liquidity of Mimi's estate?She has reduced the cash needs of her estate because she has reduced the size of her gross estate.She has increased the potential cash resources of her estate by establishing a market for the shares in the corporation owned at death.She has decreased the cash needs of her estate by completely eliminating the business as an asset of her probate estate.If her estate will owe transfer taxes, she has increased the potential cash needs of her estate by using some of her applicable credit amount to pay the gift tax for the gifts to her children. A)III and IV B)II, III, and IV C)I and II D)I, II, and IV

1) She has reduced the cash needs of her estate because she has reduced the size of her gross…

Answered: Mimi has completed a preferred stock…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question #57 of 85

Question ID: 1251849

Mimi has completed a preferred stock recapitalization of a business that had been solely owned by her. She retained all preferred shares in the new business entity and gifted all nonvoting common shares to her three children in equal shares. Her preferred shares have a fixed liquidation value and a cumulative right to a fixed amount of income.

Which of the following are correct statements regarding the effect of this transaction upon the liquidity of Mimi's estate?

She has reduced the cash needs of her estate because she has reduced the size of her gross estate.
She has increased the potential cash resources of her estate by establishing a market for the shares in the corporation owned at death.
She has decreased the cash needs of her estate by completely eliminating the business as an asset of her probate estate.
If her estate will owe transfer taxes, she has increased the potential cash needs of her estate by using some of her applicable credit amount to pay the gift tax for the gifts to her children.

III and IV

II, III, and IV

I and II

I, II, and IV

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