Perry owns 80% of Weed Corporation and Aimee owns the other 20%.In exchange for all of the Weed stock,Perry receives 3,400 shares of Grass Corporation common stock (value $70,000),and Aimee receives 50 shares of Grass preferred (value $20,000).Perry also receives $10,000 in bonds.The exchange qualifies as what type of transaction?

Question

Quizplus · Accepted Answer

The exchange qualifies as a "Type A" reorganization.Preferred stock can be used in a "Type A" reorganization to meet the continuity of interest test.Perry received more than 50% of the consideration in the form of stock.He recognizes gain to the extent of the bond received ($10,000).

Perry Owns 80% of Weed Corporation and Aimee Owns the Other