At the beginning of the current year, Scott Inc. has 131,000 shares of common stock outstanding. The shares were originally issued at $11.25 per share for total proceeds of $1,473,750, with this amount constituting the PUC. During the current year, a creditor holding $505,000 of the Company's debt agrees to accept 43,000 newly issued common shares of the Company in exchange for settlement of the debt obligation. At the time of this exchange, the shares are trading at $12.05 per share. Subsequent to the exchange, Mr. Scott, who had purchased 7,000 Scott Inc. shares at the time of their original issue, sells the shares for $14.36 per share.
Describe the tax consequence(s)to all of the shareholders of Scott Inc. as a result of the exchange of debt for common shares. In addition, describe the tax consequences to Mr. Scott resulting from the sale of his Scott Inc. shares.

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The Answer of At the beginning of the current year, Scott Inc. has 131,000 shares of common stock outstanding. The shares were originally issued at $11.25 per share for total proceeds of $1,473,750, with this amount constituting the PUC. During the current year, a creditor holding $505,000 of the Company's debt agrees to accept 43,000 newly issued common shares of the Company in exchange for settlement of the debt obligation. At the time of this exchange, the shares are trading at $12.05 per share. Subsequent to the exchange, Mr. Scott, who had purchased 7,000 Scott Inc. shares at the time of their original issue, sells the shares for $14.36 per share.
Describe the tax consequence(s)to all of the shareholders of Scott Inc. as a result of the exchange of debt for common shares. In addition, describe the tax consequences to Mr. Scott resulting from the sale of his Scott Inc. shares.

At the Beginning of the Current Year, Scott Inc