A shareholder bought 10,000 shares of Coral Corporation for $50,000 several years ago.When the stock is valued at $90,000,Coral redeems the shares in exchange for 5,000 shares of Blush Corporation stock and a $10,000 Blush bond.This transaction meets the requirements of § 368.Which of the following statements is false with regard to this transaction?
A)The shareholder has a realized gain of $40,000.
B)The shareholder has a postponed gain of $30,000.
C)The shareholder has a basis in the Blush stock of $60,000.
D)The shareholder has a recognized gain of $10,000.
E)All of the above statements are true.

Question

Quizplus · Accepted Answer

The shareholder's basis in the Blush stock should be the original basis in the Coral stock ($50,000) minus the recognized gain ($10,000), resulting in a basis of $40,000, not $60,000.

A Shareholder Bought 10,000 Shares of Coral Corporation for $50,000