LO.2 Jed acquired 25% of the stock of Alpha Corporation (basis of $100,000) 12 years ago, and
Question:
LO.2 Jed acquired 25% of the stock of Alpha Corporation (basis of $100,000) 12 years ago, and the other 75% was purchased by Zia (basis of $510,000) three years ago. Jed also holds a 10-year, $150,000 Alpha bond paying 6% interest.
Alpha enters into a tax-free consolidation with Beta Corporation, in which Jed will receive an 8% interest in the new AlphaBeta Corporation (value $144,000) plus $36,000 and Zia will receive a 27% interest (value $486,000) plus $54,000 of land. Alpha’s basis in the land is $35,000. Jed also will exchange his $150,000 Alpha bond for a 10-year,
$155,000 AlphaBeta bond paying 5.8% interest.
Before the reorganization or distributions to its shareholders, Alpha’s value is
$720,000, and Beta’s value is $1,170,000.
a. What are Jed’s and Zia’s bases in their new AlphaBeta stock?
b. What is the amount of gain (loss) recognized by Jed, Zia, Alpha, and Beta on the reorganization?
c. Diagram the consolidation of Alpha and Beta Corporation.
Step by Step Answer:
South Western Federal Taxation 2013 Corporations Partnerships Estates And Trusts
ISBN: 9781133495574
36th Edition
Authors: William H. Hoffman, William A. Raabe, James E. Smith, David M. Maloney