Question
The key facts of the problem are: Armor Corporation exchanges $1 million of its common stock and $300,000 of Armor bonds for all of Trail
The key facts of the problem are:
Armor Corporation exchanges $1 million of its common stock and $300,000 of Armor bonds for all of Trail Corporation's outstanding stock. As part of the same transaction, Trail then merges into Armor, which receives assets having a $1.3 million FMV and a(n) $875,000 adjusted basis. In the merger, Antonello, a Trail shareholder, exchanges his 20% interest in Trail's single class of stock for $200,000 in Armor stock and $60,000 in Armor bonds. Antonello's 20%interest in Trail is comprised of 4,000 shares having a $100,000 adjusted basis. Following the reorganization, Antonello owns 5% (1,000 shares) of Armor 's stock. Armor's E&P balance is $375,000.
I have the solution from the eBook. However, I'm trying to figure out a step in their solution. The step is:
Determine the total shares and the number of shares to Antonello if all stock had been received. You will have to compute the total stock ownership after hypothetical redemption and then add the stock hypothetically redeemed for bonds to get to the total stock ownership if all stock had been received. The solution for this step is:
Total shares Shares to Antonello
Stock ownership if all stock had been received 21,500 1,300
Minus: Stock hypothetically redeemed for bonds (1,500) (300)
Stock ownership after hypothetical redemption 20,000 1,000
I can't determine how they calculate total shares as 21,500. I know the value of the shares is $200 per share (calculated from a previous step). I'd like to know how to calculate/identify the 21,500.
Thanks.
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