Cocoa Corporation is acquiring Milk Corporation in a "Type A" reorganization by exchanging 40% of its voting stock and $50,000 for all of Milk's assets (value of $850,000 and basis of $600,000) and liabilities ($200,000). The shareholders of Milk are Elsie (650 shares) and Ferdinand (350 shares). They bought their stock for $500 per share. What is the value of the stock that Elsie and Ferdinand received from Cocoa? What is the amount of gains or losses they will recognize due to the reorganization and what is their basis in the Cocoa stock?
Elsie $390,000 Cocoa stock; Ferdinand $210,000 Cocoa stock. Elsie has $32,500 recognized gain, Ferdinand has $17,500 recognized gain.
Elsie's basis in her Milk stock is $325,000 (650 ´ $500) and the value of her Milk stock is $422,500 [($850,000 - $200,000) ´ 65%]. She receives $32,500 in cash ($50,000 ´ 65%) and $390,000 in Cocoa stock [($850,000 - $200,000 - $50,000) ´ 65%].
Ferdinand's basis in his Milk stock is $175,000 (350 ´ $500) and the value of his Milk stock is $227,500 [($850,000 - $200,000) ´ 35%]. He receives $17,500 in cash ($50,000 ´ 35%) and $210,000 in Cocoa stock [($850,000 - $200,000 - $50,000) ´ 35%].

Question

Quizplus · Accepted Answer

The Answer of Cocoa Corporation is acquiring Milk Corporation in a "Type A" reorganization by exchanging 40% of its voting stock and $50,000 for all of Milk's assets (value of $850,000 and basis of $600,000) and liabilities ($200,000). The shareholders of Milk are Elsie (650 shares) and Ferdinand (350 shares). They bought their stock for $500 per share. What is the value of the stock that Elsie and Ferdinand received from Cocoa? What is the amount of gains or losses they will recognize due to the reorganization and what is their basis in the Cocoa stock?
Elsie $390,000 Cocoa stock; Ferdinand $210,000 Cocoa stock. Elsie has $32,500 recognized gain, Ferdinand has $17,500 recognized gain.
Elsie's basis in her Milk stock is $325,000 (650 ´ $500) and the value of her Milk stock is $422,500 [($850,000 - $200,000) ´ 65%]. She receives $32,500 in cash ($50,000 ´ 65%) and $390,000 in Cocoa stock [($850,000 - $200,000 - $50,000) ´ 65%].
Ferdinand's basis in his Milk stock is $175,000 (350 ´ $500) and the value of his Milk stock is $227,500 [($850,000 - $200,000) ´ 35%]. He receives $17,500 in cash ($50,000 ´ 35%) and $210,000 in Cocoa stock [($850,000 - $200,000 - $50,000) ´ 35%].

Cocoa Corporation Is Acquiring Milk Corporation in a "Type A