Tree Corporation and Branch Corporation Would Like to Merge

question 105

Multiple Choice

Tree Corporation and Branch Corporation would like to merge.Tree has a net value of $700,000 and Branch's net value is $300,000.They were considering creating a new corporation called TreeBranch but Branch has valuable patents that cannot be transferred.Therefore,Tree will transfer all of its assets to Branch in exchange for 70% of its stock.Tree will then liquidate by exchanging the Branch stock with its shareholders for their stock in Tree.Which,if any,of the following statements is correct?

• A)This transaction qualifies as a reverse "Type B" reorganization.
• B)This transaction qualifies as a reverse "Type C" reorganization.
• C)This transaction does not qualify as a reorganization, because Tree only receives 70% of Branch's stock. Tree needs to acquire at least 80% of the stock to qualify for tax-free treatment.
• D)This transaction does not qualify as a reorganization because Tree, the larger corporation, rather than Branch, the smaller corporation, ceases to exist after the transaction.
• E)None of the above statements is correct.

---

Definitions:

Price Sensitivity

The degree to which the price of a product or service affects consumers' purchasing decisions or demand for the product.

Markup Pricing

A pricing strategy where a fixed percentage is added to the cost of a product to determine its selling price.

Price Sensitivity

The degree to which the price of a product affects consumers' purchasing behaviors, reflecting their responsiveness to price changes.

Shrinkflation

A business practice where the size or quantity of a product is reduced while its price remains the same or is increased, effectively elevating the price per unit.