The Long Corporation Has $500,000 of Assets with a Basis

question 59

Multiple Choice

The Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for her Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?

• A)This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses.
• B)This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses.
• C)This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain.
• D)The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
• E)None of the above statements is correct.

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Definitions:

Managerial Personnel

Employees who are responsible for making key decisions and overseeing the operations of a company, including executives and departmental managers.

Asset Revaluation Surplus

The increase in value of an asset, reflected on a company's financial statements, after it has been revalued to its current market value.

General Reserve

Funds set aside by a company from its profits for general unspecified future risks or obligations.