Question

Which of the following statements does not describe a motivation by the buyer or seller in the acquisition or sale of a company? Multiple Choice Buyers generally prefer to buy assets because they can take a tax basis in the assets acquired equal to the assets' fair market value. Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the company acquired equal to the assets' fair market value. Sellers generally prefer to sell assets in a tax-deferred reorganization to avoid higher tax rates imposed on gains from the sale of non-capital assets. Sellers generally prefer to sell stock because they can recognize capital gain on the sale taxed at preferential rates.

Answer 1

Answer:

The following statement is not true: Buyers generally prefer to buy stock because they can take a tax basis in the underlying assets of the

company acquired equal to the assets' fair market value.

Explanation:

Acquisition of a company is like buying and selling of a product. You can't sell unless you have a buyer and vice versa. Acquisition can be defined as the process in which a company buys most or all of the shares of the other company with the motive to gain control. In the process of acquisition, the sellers are motivated to sell in tax deferred reorganization in order to avoid higher tax rates on gain from sale. Also, they sell stocks with the motive to have capital gain on sale taxed at preferential rates. The buyers, on the other hand, prefer to buy stock so that they can have a tax basis in the assets acquired which is equal to assets' fair market value.