Ocelot Corporation Is Merging into Tiger Corporation Under State Law

question 55

Multiple Choice

Ocelot Corporation is merging into Tiger Corporation under state law requirements. Ocelot transfers assets worth $300,000 to Tiger. Ocelot receives 30,000 shares of Tiger stock and $200,000 cash. Ocelot transfers the Tiger stock, $200,000 cash, and all of its liabilities ($50,000) to its shareholder, Van, in exchange for all of his Ocelot stock (basis $100,000) . Ocelot then liquidates. How is this transaction treated for tax purposes?

• A)Since this qualifies as a "Type A" reorganization, Van recognizes no gain.
• B)Since this qualifies as a "Type C" reorganization, Van recognizes a $200,000 gain.
• C)Since this qualifies as a "Type A" reorganization, Van recognizes a $150,000 gain.
• D)Since this does not qualify as a reorganization, Van recognizes a $150,000 gain.

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Definitions:

Cost of Goods Sold

An accounting term that represents the direct costs attributable to the production of the goods sold by a company.

Ending Inventory

The cumulative monetary value of products available for selling by the close of a fiscal period.

Net Income

The profit of a company after all expenses, including taxes and operating costs, have been deducted from total revenue.

Overstated Inventory

A situation in accounting where the value of inventory is recorded higher than it actually is, leading to inaccurate financial statements.