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 1.Question :(TCO 5) One of the tenets of U.S. tax policy is to encourage business development. Which Code section does not support this tenet?
Student Answer: Section 351, which allows entities to incorporate tax-free
 Section 1031, which allows the exchange of stock of one corporation for stock of another
 Section 368, which allows for tax-favorable corporate restructuring through mergers and acquisitions
 Section 381, which allows the target corporation’s tax benefits to carryover to the successor corporation
 None of the above

 

 2.Question :(TCO 5) Silver Corporation transfers assets with a fair market value of $3,000,000 (basis of $750,000) to Gold Corporation. Silver receives Gold voting stock worth $2,600,000 and cash of $400,000. Gold assumes none of Silver’s $600,000 liabilities. Silver distributes the Gold stock and its liabilities to its shareholders. Silver recognizes gain on the transfer of
Student Answer: $0.
 $400,000.
 $600,000.
 $1,000,000.
 None of the above

 

 3.Question :(TCO 5) Which type of reorganization can be used to divide a corporation?
Student Answer: Type A
 Type B
 Type D
 Type E
 All of the above

 

 4.Question :(TCO 5) Jasper Corporation merges into Agate Corporation by exchanging all of its assets for 250,000 shares of Agate stock valued at $2 per share and $100,000 of cash. Zircon, the sole shareholder of Jasper, surrenders her Jasper stock (basis $900,000) and receives all of the Agate stock plus the $100,000. Which statement is true?
Student Answer: Zircon has a $100,000 realized and recognized gain. Her basis in the Agate stock is $600,000.
 Zircon has a $100,000 realized and recognized gain. Her basis in the Agate stock is $900,000.
 Zircon has a $300,000 realized loss and a $100,000 recognized loss. Her basis in the Agate stock is $800,000.
 Zircon has a $300,000 realized loss but no recognized loss. Her basis in the Agate stock is $800,000.
 None of the above

 

 5.Question :(TCO 5) Jade Corporation merged into Fluorite Corporation 2 years ago. At the time of the merger, Jade had an E & P deficit of $350,000 and Fluorite had a positive E & P of $300,000. The prior 2 years have resulted in a positive E & P of $100,000. Despite having a negative E & P of $30,000 for the year, Fluorite makes a distribution to its shareholders of $370,000. How is the distribution taxed to the shareholders?
Student Answer: $370,000 treated as a return of capital
 $20,000 taxed as a dividend and $350,000 treated as a return of capital
 $300,000 taxed as a dividend and $70,000 treated as a return of capital
 $370,000 taxed as a dividend
 None of the above

 

 6.Question :(TCO 6) Which is potentially a disadvantage of electing to file a federal corporate income tax consolidated return?
Student Answer: Additional administrative costs in complying with the election
 Deferral of gains realized in transactions between group members
 Increased basis in the stock of a subsidiary that generates annual taxable income
 Dividends received deduction for payments from a subsidiary to the group’s parent
 None of the above

 

 7.Question :(TCO 6) Which corporation is not eligible for consolidated return status?
Student Answer: Tax-exempt charitable corporations
 Insurance companies
 Corporations formed outside the United States
 Partnerships
 All of the above

 

 8.Question :(TCO 6) Deer Corporation was acquired last year by Lobo Corporation in a transaction causing an ownership change. At the time of the acquisition, the fair market value of Deer was $1.5 million and the federal long-term tax-exempt rate was 5%. In the current year, Lobo has $600,000 of taxable income and excess credits carryovers from Deer amounting to $40,000. Which is Lobo’s federal income tax for the year if Lobo is in the 34% tax bracket?
Student Answer: $178,500
 $96,000
 $55,000
 $27,540
 None of the above

 

 9.Question :(TCO 6) Members of a controlled group share all but which tax attribute?
Student Answer: The lower tax rates on the first $75,000 of taxable income
 The $40,000 AMT exemption
 The § 179 depreciation amount allowed
 All of the above attributes are shared among controlled group members.
 None of the above

 

 10.Question :(TCO 6) How must the IRS collect the liability for federal taxes from among a consolidated group?
Student Answer: According to their relative net asset holdings
 According to an internal tax-sharing agreement
 Against the parent of the group
 Against the member of the group that generated the tax
 No particular order of collection prescribed