Acquiring Corporation Acquires All of the Assets of Target Corporation

question 37

Essay

Acquiring Corporation acquires all of the assets of Target Corporation in exchange for $3,000,000 of Acquiring common stock and the assumption of $2,000,000 of Target's liabilities. The assets had a $2,300,000 adjusted basis to Target. Target's sole shareholder, Paula, had a $1,000,000 adjusted basis for her stock. Target Corporation had $600,000 of E&P on the acquisition date. Paula receives all of the Acquiring common stock in the liquidation of Target. What are the tax consequences of the acquisition to: Acquiring, Target, and Paula?

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Definitions:

Minimum Imposed Price

A price floor set by the government or regulatory body, below which a good or service cannot be sold, often to protect producers.

Consumers

Individuals or groups that purchase goods and services for personal use rather than for manufacturing or resale purposes.

Producers

Entities that create, manufacture, or supply goods and services.

Price Ceiling

A government-imposed limit on how high a price is charged for a product, intended to protect consumers by preventing prices from reaching excessively high levels.