Sparrow Corporation Purchased 90% of the Stock of Warbler Corporation

question 57

True/False

Sparrow Corporation purchased 90% of the stock of Warbler Corporation eight years ago for $1 million. In the current year, Sparrow liquidates Warbler and acquires assets with a basis to Warbler of $850,000 (fair market value of $1.2 million). Sparrow will have a basis in the assets of $850,000 (Warbler's basis in the assets), and a recognized loss of $150,000 ($1 million basis in Warbler stock - $850,000 carryover basis in assets).

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Definitions:

Government Budget Deficit

The financial situation in which a government's expenditures exceed its revenues.

Loanable Funds

The resources available for borrowing, determined by the market for loans where savers supply funds and borrowers demand them.

Interest Rate

The cost of borrowing money or the return for investing money, expressed as a percentage of the amount borrowed or invested.

Stock

A share in the ownership of a company, representing a claim on the company's assets and earnings.