Question

Which of the following is not true of taxable asset purchases?
a. Net operating losses carry over to the acquiring firm.
b. The acquiring firm may step up its basis in the acquired assets.
c. Target firm shareholders are subject to a potential immediate tax liability.
d. Target firm net operating losses and tax credits cannot be transferred to the acquiring firm.
e. None of the above

Answer 1

Answer:

e. None of the above

Explanation:

The taxable asset purchases allows the individual to increase or step up the tax basis of acquired assets so as to reflect the price of the purchases made.

If one buy an assets, then he or she wants to allocate total purchase price in a way which gives a favorable postacquisition tax results.

In case of taxable asset purchases, the tax credits or the net operating losses cannot be transferred from the target firm to the acquiring firm.

Answer 2

The net operating loss carries over to the acquiring firm is not true of a taxable transaction.

What is an asset?

An asset may be defined as any source owned by any individual or business that provides a long-term benefit that usually lasts for at least one year.

In a taxable asset purchase, net operating losses are not acquired by the firm. All the other statements are true for the taxable asset purchase.

Therefore, A is the correct option.      

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