In Most Situations, a Target Subsidiary Has Some Assets That

question 39

True/False

In most situations, a target subsidiary has some assets that have appreciated in value (i.e., fair market value exceeds the asset's basis), and other assets where the value is less than the asset's basis.In such case, the acquiring corporation, desiring the highest basis possible for the assets, might first purchase the appreciated property, then purchase the subsidiary's stock, and then liquidate the subsidiary under § 332.By so doing, the acquiring corporation might violate the Code's "consistency" provision.

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Definitions:

Holder in Due Course

A legal term referring to a person who has acquired a negotiable instrument in good faith and for value, and thus has certain protections against defenses and claims that could be raised by prior parties.

Transfer Warranties

Guarantees provided by a seller to a buyer regarding the condition and legality of the item or property being transferred.

Endorsement

The act of signing one's name on the back of a financial instrument, such as a check, thereby transferring rights or title to another party.

Payee

The party that receives the benefit of an order (check, etc.).