Gator Corporation is considering the acquisition of Bulldog Corporation€™s stock in exchange for cash. Two options are under review: (1) Gator purchases the assets from Bulldog for $1.4 million or (2) Gator purchases the Bulldog stock for $1 million and makes a Sec. 338 election shortly after the stock purchase. Bulldog has no NOL or capital loss carryovers. Bulldog€™s balance sheet is presented below.

a. What advantages would accrue to Gator if it purchases the assets directly? What disadvantages would accrue to Bulldog if it sells the assets and then liquidates?
b. What advantages would accrue to Gator if it purchases the Bulldog stock for cash and subsequently makes a Sec. 338 election? What advantage would accrue to Bulldog if its shareholders sell the Bulldog stock?
c. How would your answers change if Bulldog had incurred $250,000 of NOLs in the current year that it cannot carry back in full due to insufficient taxable income in the preceding two years?

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Assets Adjusted BasisFMV Liabilities and Eqty Amount Cash S 100,000 5 200,000 200,000 300,000 S100,000 Short-term debt Marketable sec urities 140,000 200,000 100,000 150,000 500,000 Long-term debt Paid-in capital Retained earnings Accounts receivable100,000 Inventory (FIFO) Plant and equipment 200 Intangibles 100,000 700,000 ,000 350,000 Total $640,000 S1,400,000 Total S1.400,000