ACC 4302 Exam 2 Questions & Answers Fall 2022

ACC 4302 Exam 2 Questions & Answers Fall 2022 Email: T/F 1. In general, if a shareholder’s ownership interest is not diminished as a result of a stock redemption, the Code will treat the transaction as a sale or exchange. a. True b. False ANSWER: False RATIONALE: If a shareholder’s ownership interest is not diminished as a result of a stock redemption, the Code generally will treat the transaction as a dividend distribution. 2. A shareholder’s basis in property acquired in a stock redemption is the property’s fair market value as of the date of redemption. ANSWER: True 3. The DPAD is limited by 50% of the total W-2 wages paid by a taxpayer. ANSWER: False RATIONALE: Only those wages applicable to DPGR can be considered. 4. The AMT exemption amount of $40,000 phases out entirely once a corporation’s average gross receipts exceeds $310,000. ANSWER: False RATIONALE: The exemption is reduced by 25% of the amount by which AMTI exceeds $150,000 and disappears at $310,000. 5. In corporate reorganizations, if an acquiring corporation is using property other than stock as consideration, it may recognize gains but not losses on the transaction. ANSWER: True M/C 6. Bobcat Corporation redeems all of Zed’s 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed’s basis in his 20% interest in Bobcat is $100,000 and the stock’s value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes? a. No gain is recognized by Zed in this reorganization. b. Zed reports a $50,000 recognized dividend. c. Zed reports a $50,000 recognized capital gain. d. Zed reports a $40,000 recognized dividend and a $10,000 capital gain. e. Not enough information is available to determine proper treatment. ANSWER: d RATIONALE: Zed has a realized gain of $150,000 ($250,000 – $100,000) and a recognized gain of $50,000. His proportionate share of Bobcat Corporation’s accumulated earnings and profits is $40,000 ($200,000 × 20% = $40,000) and the remaining $10,000 gain is capital gain. 7. Mars Corporation merges into Jupiter Corporation by exchanging all of its assets for 300,000 shares of Jupiter stock valued at $2 per share and $100,000 cash. Wanda, the sole shareholder of Mars, surrenders her Mars stock (basis $900,000) and receives all of the Jupiter stock transferred to Mars plus the $100,000. How does Wanda treat this transaction on her tax return? This study source was downloaded by from CourseH on :31:40 GMT -06:00 a. Wanda has a realized loss of $200,000. Her Jupiter stock basis is $800,000. b. Wanda recognizes a loss of $100,000. Her Jupiter stock basis is $800,000. c. Wanda recognizes a $100,000 gain. Her Jupiter stock basis is $700,000. d. Wanda realizes a $200,000 loss of which $100,000 is recognized. Her Jupiter stock basis is $1 million. ANSWER: a RATIONALE: Wanda has a realized loss of $200,000; however, losses are not recognized in reorganizations. Her basis in her Jupiter stock will be $800,000 ($600,000 value of stock received + $200,000 postponed loss OR $900,000 – $100,000 cash received