Kowalski Corporation is interesting in acquiring Queenie Corporation because Queenie manufactures a product that is an essential part of Kowalski Corporations manufacturing process. Kowalski will transfer its stock for all of Queenies plants, equipment and inventory valued at $2,000,000 (adjusted basis $1,500,000) and $1,000,000 of liabilities associated with those assets. Kowalski plans on continuing to use Queenies assets in its manufacturing process. Both Kowalski and Queenie have been in existence for more than ten years. Queenie will retain $50,000 cash and $100,000 of liquid assets to pay a product liability lawsuit. Once the lawsuit is resolve Queenie will liquidate. It is expected that this will occur within one year. Queenie has a deficit in AE&P of ($200,000). Queenie is solely owned by Tina Goldstein who has a basis in her stock of $375,000.

A) What is the most favorable corporate reorganization form for the acquisition of Queenie by Kowalski? Explain your choice.

B) What is the amount of realized gain or loss recognized by Kowalski, Queenie and Tina?

C) How much of the realized gain or loss is recognized by Kowalski, Queenie and Tina?

D) What is Kowalskis basis in the assets it receives from Queenie?

E) What is Tinas basis in the Kowalski stock she receives?