Question
Michael has 100,000 shares outstanding that are worth $10 per share. It uses 32% of its stock, plus $80,000 to acquire Nickel Corporation in a
Michael has 100,000 shares outstanding that are worth $10 per share. It uses 32% of its stock, plus $80,000 to acquire Nickel Corporation in a Type A reorganization. Nickel's assets are valued at $400,000, and its accumulated earnings and profits are $25,000 at the time of the reorganization. The Michael Corp. shares and cash are distributed to the Nickel shareholders as follows. Joe (owning 62.5% of Nickel) receives 18,000 shares (value $180,000) and $70,000. Diane (owning 37.5% of Nickel) receives 14,000 shares (value $140,000) and $10,000. Joe and Diane each recognize gains to the extent of the cash they received. What is the character of Joe and Diane's gains?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started