Question

T co.'s only class of stock is owned as follows: Dave 60% ($30,000 basis) and Mary 40% ($20,000 basis). Joe owned 100% of P co. Pursuant to a plan of reorganization P co. simultaneously acquired all of Dave's T co. stock for $50,000 of P co. voting common stock and 50% of Mary's stock (20% of T co.) for $35,000 P co. voting preferred stock.

If instead of giving Dave all P co. stock, P co. gives Dave P co. voting common stock (fmv $45,000) and P co. securities (principal amount and fmv $5,000), Dave's recognized gain and basis in the P co. stock is, respectively?

	a.	$ 5,000 and $45,000
	b.	$ 5,000 and $30,000
	c.	None of these.
	d.	$20,000 and $45,000

Answer 1

Answer is option A

Recognized gain =$5000

Stock basis = $45000

Gain on transfer of P's voting stock to Dave = Amount paid - fair value = 50000-45000 = $5000

All the exchange by P co. is done for Dave's stock basis in T co.'s of $30000 but stock basis lower of sale price and fmv. Therefore, it will be $45000