Match the following items with the statements that follow. Terms may be used more than once.
-Acquiring Corporation receives all the assets of Target Corporation in exchange for 1,000 preferred shares and 6,000 common shares of Acquiring, $25,000 cash, and assumption of all the liabilities of Target. After distributing the Acquiring stock and cash to its shareholders, Target liquidates.
A)Boot
B)Business credits
C)Capital gain
D)Continuity of business enterprise
E)Continuity of interest
F)Dividend
G)Discount rate
H)Earnings and profits
I)Federal long-term tax-exempt rate
J)Liability assumption
K)Ordinary gain
L)Ownership change
M)Section 382 limitation
N)Sound business purpose
O)Step transaction

Question

Quizplus · Accepted Answer

J  E  The $25,000 cash given in the transaction is considered "boot" as it is additional consideration beyond stock. The assumption of liabilities by the Acquiring Corporation is referred to as "liability assumption." The exchange of stock and cash for assets and the subsequent liquidation of Target Corporation must meet the "continuity of interest" requirement to qualify as a tax-free reorganization.

Match the Following Items with the Statements That Follow