Heart Corporation Has Net Assets Valued at $1 Million and an NOL

question 122

Multiple Choice

Heart Corporation has net assets valued at $1 million and an NOL of $250,000. On December 31 of last year, Heart is acquired by Brain Corporation, a calendar year taxpayer, in a restructuring qualifying as a tax-free reorganization. Heart shareholders receive 45% of Brain's shares in exchange for all of the Heart stock. Assuming that the Federal long-term tax-exempt rate is 5% and Brain's discount factor is 10%, what is the maximum amount that Brain can use of Heart's NOL this year?

• A)$12,500
• B)$50,000
• C)$100,000
• D)$250,000
• E)None of the above

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Definitions:

Harmonized Sales Tax (HST)

A combined tax in some Canadian provinces that merges the federal goods and services tax (GST) with the provincial sales tax (PST) into a single value-added tax.

Current Liability

Obligations or debts that a company needs to settle within one year or one business cycle, whichever is longer.

Financial Liability

An obligation to pay money to another party, recorded on a company's balance sheet.

Contractual Obligation

A duty or responsibility one party owes to another under the terms of a contract.