Comprehensive: Acquisition of Common Stock for Common Stock Assume the same information as provided in Problem 4-1 except that PBX Company gave as consideration 50,000 shares of its

$10 par value common stock (of which 950,000 shares are already outstanding) having a market value of $30 per share for all the outstanding common stock of Sprint Company.

Required Respond to requirements 2-10 in Problem 4-1. Then continue with the following requirements:

11. Prepare the entry that PBX makes to record the combination.

12. What is the exchange ratio used in the transaction?

13. Tax questions based on the Appendix (optional):

a. What is the probable treatment for tax-reporting purposes?

b. In what asset does PBX Company have a tax basis}

c. How much is its tax basis in this asset?

d. Nick Tymer acquired 3,000 shares of Sprint’s common stock for $34,000 (shortly before the announcement of the business combination). What is his tax basis of the PBX shares he received in the exchange?

e. Did Tymer gain from his investment?