Cardinal Corporation was created six years ago through contributions from Kayla ($800,000) and Felix ($200,000). In a transaction qualifying as a reorganization, Cardinal exchanges all of its assets currently valued at $2,000,000 (basis of $1,400,000) for Spark Corporation stock valued at $1,800,000 plus $200,000 in Spark bonds. Cardinal distributes the Spark stock and bonds proportionately to Felix and Kayla in exchange for their stock in Cardinal. Cardinal's current and accumulated E & P before the reorganization amounts to $80,000.

If an amount is zero, enter "0".

a. Complete the computations below for Kayla and Felix regarding this transaction.

Kayla:

Realized Gain/Loss			Recognized Gain/Loss			Postponed Gain/Loss			Basis In Stock
	$1,600,000
	$			Bond			$
	$			$			$			$

Felix:

Realized Gain/Loss			Recognized Gain/Loss			Postponed Gain/Loss			Basis In Stock
	$400,000			$			$
				Bond
										$fill in the blank

How do Kayla and Felix treat this transaction for income tax purposes?

Kayla: Ordinary income: $ Dividend income: $ Capital gain income: $

Felix: Ordinary income: $ Dividend income: $ Capital gain income: $

b. Complete the statement below regarding how Cardinal and Spark should treat this transaction, including Spark's basis in the assets it receives from Cardinal.

Cardinal recognizes $fill in the blank 223982fc1076061_1 gain or loss on the reorganization. Spark's basis in the Cardinal assets is basis of $