Marty Is a Party to a Tax-Free Reorganization

question 13

Essay

Marty is a party to a tax-free reorganization. He has a basis of $22,000 in his Van Corporation stock that has an FMV of $35,000. Marty exchanges the Van stock for Young Corporation stock worth $29,000 and Young securities with a face amount of $7,000 and an FMV of $6,000. What is Marty's basis in the Young securities?

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Definitions:

Annual Installment

A fixed amount of money paid back to a lender once a year, typically used in the repayment of long-term loans.

Face Value

The nominal or dollar value stated on a financial instrument, such as a bond or stock certificate.

Bond Issue

The process of offering bonds for sale to investors as a way of borrowing money for long-term capital needs.

Interest Payable

The amount of interest expense that has been incurred but not yet paid by the company.