Mr. Ricardo exchanged 75 shares of Haslet common stock for 516 shares of Newland common stock pursuant to a reorganization of the two corporations. His basis in the Haslet stock was $49,200, and the fair market value of the Newland stock was $138,000. Which of the following statements about the exchange is true?
A) Mr. Ricardo recognizes no gain and takes a $138,000 basis in the Newland stock.
B) Mr. Ricardo recognizes an $88,800 gain and takes a $138,000 basis in the Newland stock.
C) Mr. Ricardo recognizes no gain and takes a zero basis in the Newland stock.
D) Mr. Ricardo recognizes no gain and takes a $49,200 basis in the Newland stock.
Correct Answer:
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