Problem 7-32 (Algorithmic) (LO. 2, 3) The Rho Corporation was incorporated eight years ago by Tyee and Danette. Tyee received 2,400 shares of common stock for his $48,000 contribution, and Danette received 4,800 shares of common stock for her $96,000 contribution. Five years ago, both Tyee and Danette acquired $24,000 of Rho bonds paying 3% interest. In the current year, Rho's common stock is valued at $432,000. SheenCo would like to acquire a 25% interest in Rho by purchasing common stock from Rho. Tyee and Danette see this as a good time to restructure Rho's capital. They would like to own bonds paying 5% interest, instead of 3%, and each would like to receive $300,000 of preferred stock (par of $100 per share) in exchange for some of his or her common stock. a. Can Rho use a "Type E" reorganization to accomplish its restructuring? Yes b. Assuming face value of the bonds does not change, is the exchange of 3% bonds for 5% bonds taxable? No c. If the exchange of common stock for preferred stock occurs before the acquisition by SheenCo, Tyee and Danette each will receive X shares of preferred stock valued at $ X in exchange for X shares of common stock. d. Is the purchase of common stock by SheenCo a taxable event? No How many shares of common stock will SheenCo purchase in order to have a 25% interest in Rho? X shares Feedback Check My Work Section 368(a) specifies seven corporate restructurings or reorganizations that will qualify as nontaxable exchanges. If the transaction fails to qualify as a reorganization, it will not receive the special tax-favored treatment. Therefore, a corporation considering business reorganization must determine in advance if the proposed transaction specifically falls within one of these seven types