Question

1. Charlie Corporation transfers $700,000 stock and land with a value of $200,000 (basis of $95,000) to Sebago for most of its assets. The only asset not acquired in the Type A reorganization, a crane, is distributed to Sebagos shareholder, Betty. The crane is valued at $285,000 (basis of $300,000), and is subject to a $165,000 liability, which Betty assumes. Charlie stock and the land also are distributed to Betty in exchange for her stock in Sebago. Bettys basis in her stock is $630,000. What is the gain or loss recognized by Charlie, Sebago, and Betty on this restructuring

Answer 1

Answer/Explanation:

1. Charlie: Asset revalued

Asset Old Value New Value Gain Loss

Land 200,000 95,000 ­ 105,000

Crane 285,000 300,000 15,000 ­

Total loss recognized by Charlie = $105,000 ­ $15,000 = $90,000

2. Sebago: Asset revalued

Asset Old Value New Value Gain Loss

Stock 700,000 630,000 ­ 70,000

Land 200,000 95,000 105,000 ­

Total gain recognized by Sebago = $105,000 ­ $70,000 = $35,000

3. Betty: Asset revalued

Asset Old Value New Value Gain Loss

Crane 285,000 300,000 ­ 15,000

Stock 700,000 630,000 70,000 ­

Total gain recognized by Betty = $70,000 ­ $15,000 = $55,000