Asity Corporation Is Interested in Acquiring the Majority of Pitta

question 21

Multiple Choice

Asity Corporation is interested in acquiring the majority of Pitta Corporation's assets. Pitta's assets are currently valued at $950,000, and its liabilities are $250,000. However, there is one operating division of Pitta in which Asity is not interested. Since Pitta desires to be taken over by Asity, Pitta first sells the unwanted division for its net fair market value of $250,000 ($350,000 FMV assets - $100,000 liabilities) . Pitta then transfers its remaining assets and liabilities to Asity for $450,000 in common voting stock. Which of the following statements is correct with regards to the proposed restructuring?

• A) Continuity of interest does not exist for the Pitta shareholders.
• B) The continuity of business enterprise test is failed.
• C) There is no sound business purpose for this restructuring.
• D) The step transaction can be applied to this transaction.
• E) All of the above statements are true.

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Definitions:

Sensations

Perceptions or feelings resulting from the stimulation of the sensory organs by the external environment.

Brain

The complex organ located in the skull that coordinates mental functions, interprets sensory information, and directs behavior.

Reflex

An involuntary and automatic reaction or response to a stimulus.

Stimulus

An external factor or event that provokes a response or reaction from a biological organism or system.