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