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.

Question

Quizplus · Accepted Answer

The shareholder's basis in the Blush stock is not $60,000. The basis is calculated by subtracting the recognized gain ($10,000) from the original basis ($50,000), resulting in a basis of $40,000 for the Blush stock.

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