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

question 73

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

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Definitions:

Leasehold Improvements

Enhancements made to rental premises by a tenant, such as additions or renovations, which typically revert to the landlord upon lease termination.

Leased Office Space

A property arrangement where a company rents a space for its business operations for a specified period of time.

FOB Shipping Point

A term used in shipping where the buyer is responsible for the goods once they leave the seller's premises.

Freight Charges

The fees incurred for transporting goods from one location to another.