Grand Corporation transfers 40% of its assets having an adjusted basis of $600,000 and an FMV of $800,000 to New Corporation in exchange for 75% of its single class of stock. Grand Corporation is owned equally by Annie and Betsy who are unrelated. Annie's basis for her Grand stock is $300,000 and Betsy's basis is $400,000. Annie exchanges all of her Grand stock for all of the New stock received in the exchange. Which of the following statements is correct concerning these transactions?

Question

Quizplus · Accepted Answer

Under this scenario, Grand Corporation will recognize a taxable gain of $200,000 ($800,000 FMV - $600,000 basis) on the transfer of its assets to New Corporation. Since Annie is exchanging all of her Grand stock for all of the New stock received in the exchange, she will have to recognize a capital gain of $500,000 ($800,000 FMV of the New stock - $300,000 basis in Grand stock). Grand's basis for the New assets will be the same as its basis in the assets transferred, which is $600,000. Thus, Options A, B, and D are incorrect.

Grand Corporation Transfers 40% of Its Assets Having an Adjusted