Sweet Corporation Is in the Candy Business and Sells Most

question 37

Multiple Choice

Sweet Corporation is in the candy business and sells most of its products in Europe.Lucky Corporation manufactures horse shoes for domestic consumption.Lucky would like to acquire Sweet Corporation because Sweet has large built-in losses in its business assets and foreign tax credit carryovers.To benefit from the built-in ordinary losses,Lucky will sell most of Sweet's business assets upon completion of the reorganization.Those assets with built-in gains will be distributed proportionately before the reorganization to Sweet's shareholders in exchange for 60% of their stock.All of the Sweet shareholders will receive Lucky stock for their remaining shares in Sweet. Which of the following statements is false?

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

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Definitions:

Income Statement

A financial statement that shows a company's revenues, expenses, and net income over a specific period.

Retail Company

A business entity that sells goods or commodities directly to consumers through various channels of distribution to earn a profit.

Credit Sales

Sales made on terms that allow the buyer to make payments at a later date, affecting the seller's accounts receivable.

Retained Earnings

The portion of net earnings not paid out as dividends but instead retained by the company to be reinvested in its core business or to pay debt.