Music Corporation Has Three Shareholders,Leonard,Henry,and Susan

question 3

Multiple Choice

Music Corporation has three shareholders,Leonard,Henry,and Susan.Leonard and Henry purchased their stock two years ago from Susan (who started Music ten years ago) .Music's income comes from the manufacturing of record players,cassette players,CD players,and substantial investments.
Leonard and Henry consider the manufacturing of record and cassette payers to be marginal businesses and want to stop their production.Susan likes providing these players even if the market is marginal.Music has been producing them since it began and only started producing CD players six years ago.Susan thinks that CD players are just a passing trend.
To resolve these issues,it is suggested that two new corporations be created: CD and Vintage.CD would receive all of the assets of the CD division and Vintage would receive all of the assets of the record and cassette player divisions.All of the stock of these corporations would be received by Music and distributed to the shareholders.Music would retain the investments.Susan would turn in some of her Music stock in return for Vintage stock,and Leonard and Henry would receive CD stock for some of their Music stock.All three shareholders would retain some Music stock as it still holds the investments.

• A)The transaction qualifies as a spin-off "Type D" reorganization.
• B)The transaction qualifies as a split-off "Type D" reorganization.
• C)The transaction qualifies as a split-up "Type D" reorganization.
• D)The transaction is taxable.
• E)None of the above.

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Definitions:

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