Which of the Following Statements Regarding Mergers and Taxes Is

question 32

Multiple Choice

Which of the following statements regarding mergers and taxes is false?

• A) Carryback and carryforward provisions essentially deliver the benefits of conglomeration to a small firm with volatile earnings.
• B) It might appear that a conglomerate has a tax advantage over a single-product firm simply because losses in one division can offset profits in another division.
• C) Companies with current-year losses can also use them to offset earnings (carryback) for the twenty prior years.
• D) The IRS will disallow a tax break if it can show that the principal reason for a takeover is tax avoidance, so it is unlikely that the tax advantage could, by itself, be a valid reason to acquire another firm.

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Definitions:

Service Charge

A charge imposed to cover expenses associated with the main product or service being acquired.

Adjusted Cash Balance

The cash amount shown on a company's books after adjustments have been made for checks written or deposits in transit.

Check Register

A record kept by an account holder of checks written and deposits made into their checking account.

Outstanding Deposits

Funds that have been deposited but not yet credited to the depositor's account or cleared by the bank.