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Stone Corp. purchased 100% of the stock of Pearl Corp. in 1984 for $100,000. Early this year, Pearl was liquidated. Stone Corp. received all of

  1. Stone Corp. purchased 100% of the stock of Pearl Corp. in 1984 for $100,000. Early this year, Pearl was liquidated. Stone Corp. received all of Pearls assets, which had a basis to Pearl Corp. of $120,000 and a FMV of $140,000. Assume the requirements of 332 were satisfied. Will Stone Corp. recognize any gain as a result of the liquidation?

    a. yes.

    b. no.

2. Refer to question #11 above. Will Pearl Corp. recognize any gain as a result of the liquidation?

a. yes.

b. no.

3. Refer to question #11 above. The $40,000 of gain potential in the stock owned by Stone Corporation prior to the liquidation is:

  1. a. deferred until a later time.

    b. eliminated, i.e., will never be recognized.

4.Rick owns 50% of the 123 Company and his daughter, Donna, owns the other 50%. Rick decides to have 123 redeem all of his stock. Although Rick will not directly own any stock in 123 after the redemption, he will continue to be a member of 123s board of directors. Will Ricks redemption, as structured, be eligible for sale treatment under Section 302(b)(3) as a complete termination?

a. yes.

b. no.

5. A corporation's "earnings and profits" account is always equal to the company's "retained earnings" account on its balance sheet.

a. true.

b. false.

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