Buddy Owns 100 of the Outstanding Shares of Binder Corporation

question 46

Multiple Choice

Buddy owns 100 of the outstanding shares of Binder Corporation stock. Buddy's basis in his Binder Corporation stock is $100,000. Binder Corporation is merged with Clipper Corporation in a tax-free reorganization. Buddy receives 50 shares of Clipper stock worth $150,000 and $150,000 cash. The remaining 100 shares of Binder stock were owned by Bruce who received the same consideration for his Binder stock. Binder and Clipper have E&P balances of $250,000 and $500,000, respectively. Buddy and Bruce each own 25% of Clipper Corporation's 200 shares of stock after the reorganization. Which of the following is correct?

• A)Buddy recognizes $200,000 as dividend income.
• B)Buddy recognizes $200,000 as a capital gain.
• C)Buddy recognizes $150,000 as dividend income.
• D)Buddy recognizes $150,000 as a capital gain.

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Definitions:

Action Guide

A resource or tool that provides advice and strategies to accomplish specific goals or tasks.

Justification

The action of showing something to be right or reasonable, often used in legal and ethical contexts.

Anterior Motive

A motive or reason for action that predates the current situation or decision.

Syphilis

A sexually transmitted infection caused by the bacterium Treponema pallidum, known for its varied and often severe health effects.