Andy Albertowned all of the common stock of Widgets Manufacturing since he founded the corporation in 1980.Widgets Manufacturing has only common stock outstanding. Widgets Manufacturing has been very profitable over the years but has never paid Andy a dividend. While Widgets was audited a few times, the issue of dividends was never brought up. In 2019, Andydecided to diversify Widgets Manufacturing into other types of products.However, Andy did not want Widgets Manufacturing to engage in manufacturing other products.He has decided that he needs other entities to assume any new manufacturing businesses. He believes that this would help shield his core business, Widgets, from any potential losses in any new businesses. Andy wanted to operate one or two new businesses as a sole proprietor but after talking to his bankers, he decided that he did not personally have the necessary cash or assets. Andy also doesn't want to withdraw any cash from Widgets Manufacturing at this time because this could jeopardize Widgets future if sales decline.Andy talked to an attorney on the Legal Zoom website and this individual suggested the following course of action.

The attorney suggested that Andy transfer his Widgets Manufacturing stock to a newly created corporation, All Weather Products. All Weather Products would borrow $175,000 from a local bank, and the debt would be guaranteed by Widgets Manufacturing. Some of the Widgets Manufacturing stock that All Weather Products received would be placed in escrow at the bank to secure the loan.Andy would then receive all of the common stock of All Weather Products along with $175,000. Two months later, All Weather Products would repay the bank loan with funds received from Widgets Manufacturing.

Andy has always trusted your accounting advice and so he came to you with the attorney's proposal. Respond to Andy's questions.

1. Overall, will the attorney's plan, as stated, result in no recognized gain or loss, or recognized income for Andy? Why or why not? Be specific in your response and provide all numbers and calculations. If there is gain or income for Andy state how much gain and/or income and the character of that gain and/or income.

Andy wants you to come up with a different plan to allow him to get some cash from Widgets Manufacturing without recognizing any gain and/or income, or at the very least, limiting the amount gain and/or income that he'd have to recognize. Be specific with your plan and provide all numbers and calculations.