Rocky Is a Party to a Tax- Free Asset- For-

question 40

Multiple Choice

Rocky is a party to a tax- free asset- for- stock reorganization. As part of the transaction, Rocky exchanges 100% of the Hope Corporation stock with a $40,000 basis and a $50,000 FMV for Moth Corporation stock worth $40,000 and $10,000 cash. Hope Corporation is subsequently liquidated as part of the reorganization, with Moth receiving the Hope assets and liabilities. Rocky is

• A) not required to recognize any gain or loss.
• B) required to recognize dividend income of $10,000 if Hope Corporation's current and accumulated E&P is at least $10,000.
• C) required to recognize capital gain or dividend income of $10,000, depending on Hope Corporation's current and accumulated E&P and Rocky's postacquisition interest in Moth Corporation.
• D) able to recognize capital gain income of $10,000 without regard to his post- acquisition interest in Moth Corporation.

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Definitions:

Society's Production

The total output of goods and services produced by all sectors within a society or economy.

Capital Goods

Long-term assets such as machinery, buildings, and equipment purchased by companies to produce goods and services.

Consumer Goods

Consumer goods are products bought by individuals or households for personal use, such as clothing, food, and household items.

International Specialization

The practice of countries focusing on the production of goods and services for which they have a comparative advantage, leading to trade.