Character of loss. The Michigan Corporation owns 20% of the Wolverine Corporatio

Question

Character of loss. The Michigan Corporation owns 20% of the Wolverine Corporation. The Wolverine stock was acquired eight years ago to ensure a steady supply of raw materials. Michigan also owns 30% of Spartan Corporation and 85% of Huron Corporation. Stock in both corporations was acquired more than ten years ago for investment purposes. During the current year, Wolverine, Spartan, and Huron are deemed bankrupt, and the stocks are considered worthless. Decribe how Michigan should treat its losses.

Explanation / Answer

Michigan Corporation should sell some 50-70% of its stake in Spartan Corporation and Huron Corporation, retaining the rest in case situation gets better. It should move its resources to increase its stake in Wolverine Corporation This will solve two purposes. The Wolverine Corporation will be revived and more of it will come under Michigan Corporation and also, it won't lose its supply of raw materials.

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