Gato Corporation Exchanged 25% of Its Stock with Lobo for All

question 59

Multiple Choice

Gato Corporation exchanged 25% of its stock with Lobo for all of its assets. The Gato stock was distributed to the Lobo shareholders in exchange for all of their stock. Lobo then liquidated. At the time of the acquisition by Gato, the value of Lobo was $3 million, and the Federal long-term tax-exempt rate was 4%. In the current year, Gato has $500,000 of taxable income. Lobo has excess credits from prior years amounting to $150,000. What amount of Lobo's credits may Gato use in computing its Federal income tax for the year if Gato is in the 21% tax bracket?

• A) $150,000
• B) $105,000
• C) $79,800
• D) $40,800
• E) None of these

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Definitions:

Moderate Risk

A level of danger or uncertainty that is considered to be within an acceptable range for undertaking certain actions or decisions.

Democratic Style

A style of leadership in which the leader uses interaction and collaboration with followers to direct the work and work environment.

Role Ambiguity

A condition in which an employee lacks clear information regarding their job responsibilities.

Discretionary Influence

The capacity to affect outcomes within an organization through the use of personal or informal power, beyond formal job requirements.