Sparrow Corporation Purchased 90% of the Stock of Warbler Corporation

question 30

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 no recognized gain or loss.

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Definitions:

Residual Value

The estimated remaining value of an asset at the end of its useful life, often used in calculating depreciation expenses.

Useful Life

The estimated period over which an asset is expected to be usable for its intended purpose.

Depreciation

The method of spreading the expense of a physical asset across its lifespan, demonstrating the decline in its value as time progresses.

Asset

Economic resources owned by a business or individual, expected to provide future benefits or value.