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Corporation Parent (P)owns 85 percent of Corporation A1;Corporation A1 owns 60 percent of Corporation A2; Corporation A2owns 90 percent of A3; Corporation A3 owns 60 percent ofCorporation A4 and 15 percent of Corporation A2; Corporation A4owns 100 percent of Corporation A5. Identify the consolidatedgroup(s) of corporations. a. P-­?A1-­?A2-­?A3-­?A4-­?A5 b. P-­?A1only c. P-­?A1and A2-­?A3-­?A4-­?A5 d. P-­?A1; A2-­?A3; and A4-­?A5e. P-­?A1 and A2-­?A3

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Sixta Kovacek
Sixta KovacekLv2
28 Sep 2019

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Light Corporation owns 80 percent of Sound Company's votingshares. On January 1, 20X7, Sound sold bonds with a par value of$300,000 at 95. Light purchased two thirds of the bonds; theremainder was sold to nonaffiliates. The bonds mature in ten yearsand pay an annual interest rate of 6 percent. Interest is paidsemiannually on January 1 and July 1.

8. Based on the information given above, what amount of interestexpense should be reported in the 20X8 consolidated incomestatement?
Answer is B. $6,500

9. Based on the information given above, what amount of interestreceivable will be recorded by Light Corporation on December 31,20X8, in its separate financial statements?
Answer is D. $6,000

10. Based on the information given above, what amount ofinterest expense will be eliminated in the preparation of the 20X8consolidated financial statements?
Answer is A. $13,000

Master Corporation owns 85 percent of Servant Corporation'svoting shares. On January 1, 20X8, Master Corporation sold $200,000par value 8 percent bonds to Servant for $245,000. The bonds maturein 10 years and pay interest semiannually on January 1 and July1.

13) Based on the information given above, in the preparation ofthe 20X8 consolidated financial statements, premium on bondspayable will be

Answer is C. debited for $40,500 in the consolidatingentries

14) Based on the information given above, in the preparation ofthe 20X8 consolidated financial statements, interest income willbe

Answer is debited for $11,500 in the consolidatingentries.

15) Based on the information given above, whatamount of investment in bonds will be eliminated in the preparationof the 20X8 consolidated financial statements?

Answer is $240,500

For each of the scenarios provided (1-12) answer the followingquestions:

a. Is the transaction taxable?
b. If not, indicate the type of reorganization.
c. In 2 or 3 sentences, support your decision. For example, if youstate the transaction is a Type B reorganization, explain why thetransaction qualifies as a Type B reorganization.

Scenario:

Red Corporation owns assets valued at $500,000 and liabilitiesat $200,000, and White Corporation has assets valued at $1 millionand liabilities of $150,000. Red transfers 75% of its voting stockto White in exchange for 90% of its assets. White distributes theRed stock, its own remaining assets, and all of its liabilities tothe White shareholders. White then liquidates.

Green Corporation holds assets valued at $600,000 andliabilities of $150,000. Blue Corporation transfers $540,000 of itsvoting stock for 90% of Green’s assets. Blue assumes none ofGreen’s liabilities. Green distributes the Blue stock, its ownretained assets, and its liabilities to the Green shareholders andthen liquidates.

Orange owns assets valued at $400,000 and liabilities of$100,000. Yellow Corporation exchanges $200,000 of its voting stockand land worth $100,000 for all of Orange’s assets and liabilities.Orange distributes the Yellow stock to the Orange stockholders andretains the land.

Apricot Corporation moves its headquarters and incorporationfrom Rochester, New York, to Santa Fe, New Mexico. It changes itsname to Chile Pepper, Inc.

Pink Corporation holds assets valued at $500,000 and liabilitiesat $100,000. Black Corporation transfers $350,000 of its votingstock and $50,000 of nonvoting stock for all of Pink’s voting andnonvoting stock. Pink becomes a subsidiary of Black.

Gray Corporation’s paperclip division owns assets valued at$300,000 and liabilities of $50,000. The staple division holdsassets valued at $900,000 and liabilities of $150,000. Gray wouldlike the two divisions to be separate corporations. It createsSilver Corporation and transfers all of the paperclip divisionassets and liabilities in exchange for 100% of Silver’s stock. Graythen distributes the Silver stock to its own shareholders inexchange for 25% of their stock in Gray. The divisions have been inexistence for 10 years.

Purple holds assets valued at $800,000 and liabilities at$200,000. Brown Corporation transfers $280,000 of its voting stockfor 60% of Purple’s assets and all of its liabilities. Purpledistributes the Brown stock and its remaining assets to the Purpleshareholders. Purple then liquidates.

Rust Corporation holds assets valued at $500,000 and liabilitiesat $150,000. Beige Corporation transfers $350,000 of its votingstock and $30,000 in cash for all of Rust’s assets and assumes 80%of its liabilities. Rust distributes the Beige stock, cash, and theremaining Rust liabilities to its shareholders and thenliquidates.

Gold Corporation owns assets valued at $850,000 and liabilitiesat $800,000. To keep its creditors from foreclosing, Gold creates anew corporation, Fish, Inc., and transfers all of Gold’s assets toFish under the guidance of the state court. The creditors received$800,000 of Fish stock, and the former Gold shareholders receivethe remaining shares in Fish.

Cyan Corporation holds assets valued at $100,000 withliabilities of $20,000. Coral Corporation has assets valued at$900,000 with liabilities of $100,000. Cyan exchanges 80% of itsvoting stock for 40% of Coral’s assets and liabilities. Coraldistributes the Cyan stock and the remaining Coral assets andliabilities to the Coral shareholders. Coral then liquidates.

Fuchsia Corporation obtained 40,000 shares of SlateCorporation’s stock four years ago. In the current year, Fuchsiaexchanges 20% of its stock for 42,000 of the remaining 60,000shares of Slate stock. After the transaction, Fuchsia owns 82,000of the 100,000 Slate shares outstanding.

Chartreuse Corporation has two lines of business (waterpurification and mining), which have been conducted for the past 20years. Chartreuse’s shareholders decide that it would be best tosplit Chartreuse into two corporations. The assets and liabilitiesof the water purification plant are transferred to Aqua Corporationin exchange for all of its stock. The mining division’s assets andliabilities are exchanged for all of the stock in CopperCorporation. The Aqua and Copper stock is distributed to theChartreuse shareholders in return for all of their Chartreusestock. Chartreuse then liquidates.

Determine whether the following transactions are taxable. If a transaction is not taxable, indicate what type of reorganization is effected, if any.

A. AlphaPsi Corporation owns two lines of business that it has conducted for the last eight years. For liability protection, AlphaPsi’s shareholders decide that it would be best to separate into two corporations. The assets and liabilities of the garbage collection division are transferred to Alpha Corporation in exchange for all of its stock. The manufacturing division’s assets and liabilities are exchanged for all of the stock of Psi Corporation. The Alpha and Psi stocks are distributed to the AlphaPsi shareholders in return for all of their AlphaPsi stock. Then AlphaPsi liquidates.

B. Alpha, Inc., owns assets valued at $1 million and liabilities of $450,000. Beta Corporation transfers $500,000 of its voting stock and $50,000 in cash for all of Alpha’s assets. Beta assumes Alpha’s liabilities. Alpha distributes the Beta stock and cash to its shareholders and then liquidates.

C. Alpha Corporation moves its headquarters and state of legal incorporation from Salem, Oregon, to Dover, Delaware. It also changes its name to Beta, Inc.

D. Beta Company holds assets valued at $850,000 and liabilities of $50,000. Alpha, Inc., transfers $790,000 of its voting and $10,000 of nonvoting common stock for all of Beta’s common and preferred stock. Beta becomes a subsidiary of Alpha.

E. Alpha, Inc., owns assets valued at $600,000 and liabilities of $150,000. Beta Corporation exchanges $270,000 of its voting stock and investments worth $180,000 for all of Alpha’s assets and liabilities. Alpha distributes the Beta stock to its shareholders for 60% of their stock and retains the investments.

F. Beta Company holds assets valued at $3 million and liabilities of $100,000. Nu Company transfers $2.85 million of its voting stock for 95% of Beta’s assets. Beta distributes the Nu stock, the remaining assets, and the liabilities to its shareholders; it then liquidates

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