Detroit Corporation Sued Chicago Corporation for Intentional Damage to Detroit's

question 113

Multiple Choice

Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill. Detroit had created its goodwill through providing high-quality services to its customers. Thus, no basis for the goodwill appeared on Detroit's balance sheet. The suit was settled and Detroit received $1,500,000 for the damages to its goodwill.

• A) The $1,500,000 is not taxable because it represents a recovery of capital.
• B) The $1,500,000 is taxable because Detroit has no basis in the goodwill.
• C) The $1,500,000 is not taxable because Detroit did nothing to earn the money.
• D) The $1,500,000 is not taxable because Detroit settled the case.
• E) None of these.

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Definitions:

Personal Trusts

Financial instruments in which assets are held by a trustee for the benefit of the trust's beneficiaries according to the terms of the trust agreement.

Risk Averse

A description of an investor's or institution's preference to avoid risk, opting instead for the most stable and predictable outcomes.

Investment Horizon

The total length of time that an investor expects to hold a portfolio or a specific investment before selling it.

Liquidation Date

The predetermined date on which an investment or venture is terminated, and all assets are liquidated.