Question

Racket Corporation and Laocoon Corporation create Raccoon Corporation. Racket transfers $600,000 in assets for all of Raccoon's common stock. Racket distributes its remaining assets ($300,000) and the Raccoon common stock to its shareholder, Mia, for all her stock in Racket (basis $950,000) and then liquidates. Laocoon receives all the Raccoon preferred stock for its $400,000 of assets. Laocoon distributes its remaining assets ($300,000) and the Raccoon preferred stock to its shareholder, Carlos, for all his stock in Laocoon (basis $200,000) and then liquidates. What type of acquisition (if any) is this an example of?

Answer 1

Answer:

Type A reorganization

Explanation:

Type A reorganizations are known as statutory mergers or consolidations. This transaction involves 2 corporations, but one of them (Racket) will absorb the other one (Laocoon).

In this case, Mia doesn't have to recognize any loss or gain resulting from this merger, but Carlos has to recognize a gain equal to the remaining assets that were distributed ($300,000).