Question

Treetop Inc. (Treetop) has 19,700 shares of common stock outstanding. Alice, an individual, owns 7,092 of Treetop's shares (worth $1,419,840) and has a total adjusted basis of $1,618,600 in those shares. Harold, another individual, owns the remaining 12,608 shares in Treetop (worth $2,524,160), and Harold has a total adjusted basis of $2,347,500 in the shares. Treetop has assets with a total fair market value of $4,100,000 and total adjusted basis of $2,620,000. Treetop's assets consist of business operating assets, which have a $3,900,000 fair markét value and $2,496,000 adjusted basis, and liquid assets, which have a $200,000 fair market value and $124,000 adjusted basis. Treetop also has $156,000 of liabilities. Photo Corp. (Photo), a publicly traded corporation with 3,700,000 shares of outstanding common stock worth $145,928,000, wants to own Treetop's business. Consequently, Photo has proposed that Photo acquire all of Treetop's outstanding stock in exchange for $3,510,000 of Photo's voting common stock and $434,000 of cash. As a result, Treetop's shareholders would receive Photo voting common stock and cash for their Treetop stock such that (1) Alice would receive $1,263,600 worth of Photo's common stock and $156,240 in cash and (2) Harold would receive $2,246,400 worth of Photo's common stock and $277,760 in cdsh As a result of the proposed acquisition: What total gain or loss would TREETOP recognize? (Important: INCLUDE a minus sign to indicate a loss (i.e., enter a $100 loss as-100') What total adjusted basis would TREETOP have in its assets? What total gain or loss would PHOTO recognize? (Important: INCLUDE a minus sign to indicate a loss (i.e., enter a $100 loss as '-100) What total adjusted basis would PHOTO have in the acquired Treetop stock? What total gain or loss would ALICE recognize? (Important: INCLUDE a minus sign to indicate a loss (i.e., enter a $100 loss as-100)) What total gain or loss would HAROLD recognize? (Important: INCLUDE a minus sign to indicate a loss (i., enter a $100 loss as'-100')

Answer 1

AL Question o - Total gain/dow of Tree Top. Tree Top Balance Acquired Balance by Photo Corp. Shares Alice $1,263,600 $1,618,600 share $2,246,400 Harold $2,347,500 Share Cash balance Liquid ass its $ 124,000 Alice share $ 156,240 Harold Share $ 2,77,760 $4,090,100 $3,944,000 .:: Total loss of Tree Top - $4,090,100 - $3,944,000 - $146,100

Question 2 Tree Top Zotal adjusted basis , $ 2,620,000

Question 3 Total gain I loss of photo corp. - on shares acquied by Photo Corp for $3,510,000 Tree top Value of Shary $3,966,100 qain on Shary * $ 456,100 - - On Cash Photo corp paid Tree Top value of liquid asset loos on liquid assets $434.000 $ 124,000 > $310,000 .: Total gain by photo corp $ 456,100 - $310,000 Gain = $146,100

Question-4 dlice Harold Total adjused by Photo Corp on acquiring True Top&lock Free top Photo corp Share $1,618,60 0 $1,263.600 Share $2,347,500 $2,246,400 $3,966,100 $3,510.000 Photo Corp Gain of $456,100

Questions Total gain I lot of Alice. Alice Share in Tree tob $1,618,600 ». $1,618,600 c) Alice Share in photo col b $ 1,263,600 - (+) Cash in photo corp $ 156,240 - $1,419,840 Total loss by Alice = - $ 198,760

AMER - Question. 6 1. Total gain, loss of HAROLD Harold Shares in Tree top $2347,500 E Harold Shares in Photo Coll $2,246,400 Cash in photo Coop $277,760 $2,524, 160 I Total gain by Harolo $176,660 Rolo