Problem 7-32 (LO. 2, 3) The Rho Corporation was incorporated eight years ago by Tyee and Danette. Tyee received 5,000 shares of common stock for his $100,000 contribution, and Danette received 10,000 shares of common stock for her $200,000 contribution. Five years ago, both Tyee and Danette acquired $50,000 of Rho bonds paying 3% interest. In the current year, Rho's common stock is valued at $900,000. 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 $120,000 of preferred stock (par of $100 per share) in exchange for some of his or her common stock. Answer the following questions regarding the Federal income tax advice for Rho. 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 $ in exchange for 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? shares