Tobi Schmidt and Nik Rowe Are Unrelated Acquaintances

question 5

Multiple Choice

Tobi Schmidt and Nik Rowe are unrelated acquaintances.Tobi owns 100% of the shares of Sun Co., and Nik owns 100% of the shares of Moon Co.Nik would like to sell all of the shares of Moon Co.to Sun Co.The shares have a cost base of $50,000 and a market value of $250,000.Nik and Tobi are meeting with an advisor to structure the sale in a manner that will defer any taxes at this time.Nik would like to take as large a note receivable as possible in the sale.Which of the following statements is correct pertaining to the sale of Moon Co.to Sun Co.?

• A)Nik will receive a note receivable from Sun Co.for $250,000.
• B)Nik will receive a note receivable from Moon Co.for $250,000.
• C)Nik will receive shares in Sun Co.valued at $200,000 and a note receivable for $50,000.
• D)Nik will receive shares in Sun Co.valued at $50,000 and a note receivable for $200,000.

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Definitions:

Prenuptial Agreement

A legal contract entered into before marriage specifying the distribution of assets and financial responsibilities in the event of divorce or death.

Donee Beneficiary

A third party who benefits from a contract in which a promisor agrees to give a gift to the third party.

Incidental Beneficiary

A person who indirectly benefits from the fulfillment of a contract or agreement but has no legal right to enforce the agreement.

Statute of Frauds

A rule of law mandating specific agreements must be documented with the signatures of those participating to be valid and binding.