Asked by McGwire Midkiff on Jun 08, 2024
Verified
Perez Co. plans to acquire Roo Co. Roo has substantial depreciable assets that have fair values in excess of their book values. Considering only the income tax impact, which of the following statements is true?
A) Perez would prefer to purchase Roo's assets and Roo would prefer to sell its shares to Perez.
B) Perez would prefer to purchase Roo's shares and Roo would prefer to sell its assets to Perez.
C) Both Perez and Roo would prefer Perez to purchase Roo's shares.
D) Both Perez and Roo would prefer Perez to purchase Roo's assets.
Depreciable Assets
Long-term assets, such as buildings or equipment, whose cost is allocated over the useful life of the asset reflecting wear and tear or obsolescence.
Income Tax Impact
The effect of income tax laws on an entity's financial results, including how taxes influence net income or loss.
- Analyze the tax implications of acquiring assets vs. shares in a business combination.
Verified Answer
AG
Anquanetta GracieJun 14, 2024
Final Answer :
A
Explanation :
Perez would prefer to purchase Roo's assets because it can then step up the basis of the acquired assets to their fair value, leading to higher depreciation deductions for tax purposes. Roo would prefer to sell its shares to avoid recapture of depreciation on the assets, which could lead to a higher tax liability.
Learning Objectives
- Analyze the tax implications of acquiring assets vs. shares in a business combination.