Question

Brody owns all the stock in Mongoose Corporation. Brody has a basis of $200,000 in the Mongoose stock, which currently has a fair market value of $500,000. Mongoose is merged into Chestnut Corporation. Brody receives Chestnut preferred stock worth $200,000 and common stock worth $300,000. Brody recognizes a gain of:______.
a. $300,000.
b. $100,000.
c. $200,000.
d. None of the above.

Answer 1

Answer:

d. None of the above.

Explanation:

Option D is correct because Brody has a basis of $200000 Mongoose stock and its market value is $500000. After the merger, Brody receives $200000 preferred stock and $300000 common stock which is equal to its market value of a stock before the merger so there is no gain.