Baxter Corporation Transfers Assets with an Adjusted Basis of $300,000

question 73

Essay

Baxter Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $500,000 to Duke Corporation for 90% of Duke's single class of stock worth $500,000. The Duke stock is then exchanged for Frank's 50% interest in Baxter Corporation. Frank's basis in the Baxter stock he surrenders is $120,000. What is Frank's basis in the Duke stock he receives?

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Definitions:

Long-Term Investment

A long-term investment is an account on the asset side of a company's balance sheet that represents the company's investments, including stocks, bonds, real estate, and cash, held for more than one year.

Net Income

The total profit or loss of a company after all revenues, expenses, taxes, and costs have been subtracted from total revenue.

Dividends

Profit distributions by a corporation to its shareholders, usually as an earnings sharing.

Outstanding Shares

The total number of shares of a company that are currently owned by shareholders, including those held by institutional investors and restricted shares owned by the company’s officers and insiders.