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Parent Corporation purchased 75 percent of Subsidiary Corporation Answer

Parent Corporation purchased 75 percent of Subsidiary Corporation Answer

Parent Corporation purchased 75 percent of Subsidiary Corporation Answer

1. Comprehensive Problem 16-54:
Parent Corporation purchased 75 percent of Subsidiary Corporation seven years ago; Subsidiary’s current balance sheet shows the following figures:

Basis Value
Demand Deposit $20,000 $20,000
IBM Stock $30,000 $50,000
Parking Lot $5,000 $30,000
Building 0 $100,000
Mortgage ($15,000) ($15,000)

2. Subsidiary has a net operating loss carryover of $7,000 and earnings and profits of $22,000.

Subsidiary redeems Roy Ramblers 25 percent stock interest in exchange for the IBM stock. Subsidiary then adopts a plan of complete liquidation and distributes its assets to Parent in complete liquidation.
a. What is the tax result to Roy?
b. Does subsidiary recognize any gain on the redemption or the liquidation?
c. What are Parent’s bases for the assets received?
d. What happens to Subsidiary’s NOL and E&P?

3. Comprehensive Problem 16-55:
Mini-Skits Ltd., owned by one shareholder, owns one asset, a building worth $100,000 with a zero basis. The shareholder’s stock basis is $20,000. A plan of complete liquidation is adopted. What are the tax consequences to both parties in each of the following cases?
a. The building is deeded to the shareholder, Bill Jones, who is taxed under Code Sec. 331.
b. The building is sold for an installment note that is distributed to Bill.
c. Mini-Skirts Ltd. Sells the building and presents a cashier’s check for $100,000 to Bill.
d. The building is deeded to the shareholder, Bill Inc., in a Code Sec. 332 liquidation.

4. Label the following transactions:
a. A Nevada corporation formed a corporation in Florida and transferred all assets to it for 100 percent of its stock. It then distributed the stock to its shareholders in cancellation of their Nevada corporation stock and was dissolved.
b. ABC Corp. acquired all the stock of MNO Corp. for its convertible bonds. All MNO assets were transferred to ABC, whereupon MNO was dissolved.
c. A corporation issues $30,000 worth of its own voting stock to retire some of its outstanding bonds with a principle amount of $40,000.
d. Convertible preferred stock is converted into common stock of the issuing corporation.
e. A corporation incorporates a division and distributes the shares received pro rata to its shareholders.
f. A corporation distributes preferred stock for each 10 shares of common stock outstanding.

5) An S corporation has the following information:
Sales 100,000
Dividend income 1,500
Tax-exempt interest 2500
Long-term capital gain 4,000
Short-term capital gain 1,800
Cost of goods sold 50,000
Advertising expense 3,000
Charitable contributions 1,000
Interest expense 2,000
Salary expense 25,000
Other operating expenses 8,000

Compute the S corporation taxable income for the year.

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Parent Corporation purchased 75 percent of Subsidiary Corporation Answer

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