Question

Cocoa Corporation is acquiring Milk Corporation in a "Type A" Reorganization by exchanging 40% of its voting stock and $50,000 for all of Milk's assets (value of $850,000 and basis of $600,000) and liabilities ($200,000). The shareholders of Milk are Elsie (650 shares) and Ferdinand (350 shares). They bought their stock for $500 per share. What is the value of the stock that Elsie and Ferdinand received from Cocoa? What is the amount of gains or losses they will recognize due to the reorganization and what is their basis in the Cocoa stock?

Answer 1

Answer: - calculation of profit Sharing ration Elsie share = 660 x100 2651 1000 perclinand share on malon = 351 66 Hsie's value of stock - = 650 $500 Elsie basis in her mitk stock $325,000 value of her milk stock = ($&59,000 - $200000)*6507 $ 422,500 Receved rash $50,000 X 65% = $32,500 Received in cocea stock ($850000-$200,000 - $50,000) Xb5%. $390,000 terdinand's value of stock:- Ferdinand's bars in her mill Stock = 350 x $ 500 = $175,000 value of milk Stock = (850,000 – 200,000)25. $227,500 Received in cash $50,000 % 35, = $ 17,500 Received in cocoa stock $850,000 - $200,000-$50,000) x 35% = $ 210,000

(2) Amount of gains (on losses - | Adjusted Basis in cocoa stock Realised Postponed gain Recognised gain Gaun $ 390,000 Elsie $422.500 $32500 $ 97,500 ($32500) ($65000) ($325.000) $65000 $ 325,000 $97.500 Ferdinand $17500 $ 52,500 $299500 (175000) $210,000 (435000) ($ $7500) $ 35000 $175.000 $52,500/ = x =