Thomas Corporation transfers to Andrews Corporation all its assets and $100,000 of its liabilities in exchange for Andrews voting common stock, having a $600,000 FMV, in a merger in which Thomas subsequently liquidates. Thomas’s basis in its assets is $475,000.
a. What is the amount of Thomas’s realized and recognized gain or loss on the asset transfer?
b. What is Andrews’s basis in the assets received?
c. What is the amount of Thomas’s realized and recognized gain or loss when it distributes the stock to its shareholders?
d. How would your answers to Parts a–c change if Thomas’s basis in the assets instead had been $750,000?
e. How would your answers to Parts a–c change if Andrews instead had exchanged $600,000 cash for Thomas assets and Thomas subsequently liquidated. Assume a 34% corporate tax rate.