Dipper Corporation Is Acquiring Bulbul Corporation by Exchanging 220,000 Shares

question 62

Essay

Dipper Corporation is acquiring Bulbul Corporation by exchanging 220,000 shares of Dipper stock and $80,000 cash for all of Bulbul's assets (valued at $500,000), liabilities ($200,000), and accumulated earnings and profits ($120,000). Betty purchased 40% of Bulbul five years ago for $60,000, and Keith purchased the remaining 60% for $90,000.
What is the amount of the gain or loss (if any) that Betty and Keith recognize, assuming that the exchange qualifies as a § 368 reorganization? What is the basis in their new Dipper stock?

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Definitions:

Cannon-Bard Theory

A theory of emotion that argues physiological arousal and emotional experience occur simultaneously but independently.

Emotional Experience

A complex state involving physiological arousal, expressions, and cognitive interpretation, often triggered by events perceived as personally significant.

Racing Heart

A rapid heartbeat that can be felt by the individual, often a symptom of anxiety, fear, exercise, or medical conditions.

Schachter's Concept

Refers to the idea that emotion results from cognitive appraisal of both physiological arousal and situational cues.