Saucer Corporation Has a Value of $800,000, Basis in Its

question 9

Multiple Choice

Saucer Corporation has a value of $800,000, basis in its assets of $670,000, and liabilities of $200,000. Cup Corporation acquires 90% of Saucer's assets by exchanging $550,000 of its voting stock, $20,000 cash, and assuming $150,000 of Saucer's liabilities. The remaining 10% of Saucer's assets not acquired is $80,000 cash. Saucer distributes the Cup stock, $100,000 in cash and associated $50,000 in liabilities to its shareholder, Sam, in exchange for his Saucer stock (basis $560,000) . Saucer then liquidates. How will this transaction be treated for tax purposes?

• A)As a "Type A" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain.
• B)As a "Type A" reorganization. Sam recognizes $100,000 gain and Saucer recognizes $120,000 gain.
• C)As a "Type C" reorganization. Sam recognizes $50,000 of gain and Saucer recognizes $20,000 gain.
• D)As a "Type C" reorganization. Sam recognizes $40,000 of gain and Saucer recognizes no gain.
• E)As a taxable transaction.

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Definitions:

Misleading Results

Outcomes of experiments or studies that do not accurately reflect the true situation, often due to errors in design, methodology, or interpretation.

Sample Size

The number of observations or data points collected from a population for the purpose of statistical analysis.

Large Sample

A significant number of observations used in research to increase the reliability and validity of statistical inferences.

Gambler's Fallacy

The misconception that a departure from what occurs on average or in the long term will be corrected in the short term.