Ace Corporation Has a Single Class of Stock Outstanding

question 108

Essay

Ace Corporation has a single class of stock outstanding. Alan owns 200 shares of the common stock, which he purchased for $50 per share two years ago. On April 10, of the current year, Ace Corporation distributes to its shareholders one right to purchase a share of common stock at $60 per share for each share of common stock held. At the time of the distribution, the common stock is worth $75 per share, and the rights are worth $15 per right. On September 10, Alan sells 100 rights for $2,000 and exercises the remaining 100 rights. He sells 60 of the shares acquired with the rights for $80 each on November 10.
a)What is the amount and character of income Alan recognizes when he receives the rights?
b)What is the amount and character of gain or loss Alan recognizes when he sells the rights?
c)What is the amount and character of gain or loss Alan recognizes when he exercises the rights?
d)What is the amount and character of gain or loss Alan recognizes when he sells the new common stock?
e)What basis does Alan have in his remaining shares?

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World War II

A global conflict that occurred from 1939 to 1945, involving most of the world's nations and marked by significant battles, atrocities, and the eventual defeat of Nazi Germany and Imperial Japan.

Widowed

The status of having lost a spouse through death, leaving one unmarried or not in a marital relationship.

American Indian

Indigenous peoples of the United States, including the mainland and Alaska Natives, with distinct cultures, traditions, and histories.

Merchants

Individuals or businesses involved in the wholesale trade, especially one dealing with foreign countries or supplying merchandise to a particular trade.