The Long Corporation Has $500,000 of Assets with a Basis

question 59

Multiple Choice

The Long Corporation has $500,000 of assets with a basis of $350,000 and liabilities of $125,000. ShortCo acquires Long's assets and $100,000 of liabilities by exchanging $400,000 of its voting stock. Long distributes the ShortCo stock and remaining liabilities to its shareholder in exchange for her Long stock with a basis of $275,000 and then it liquidates. Which, if any, of the following statements is correct?

• A)This restructuring qualifies as a "Type A" reorganization with no recognized gains or losses.
• B)This restructuring qualifies as a "Type C" reorganization with no recognized gains or losses.
• C)This qualifies as either a "Type A" or "Type C" and the shareholder has a $25,000 recognized gain.
• D)The restructuring is taxable because liabilities cannot be distributed to shareholders in a tax-free reorganization.
• E)None of the above statements is correct.

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Definitions:

Marginal Utility

The added satisfaction or usefulness obtained from using one more unit of a product or service.

Total Utility

The total satisfaction or benefit received by consuming a particular quantity of a good or service.

Price Ratio

The relative price of one good or service compared to another, often indicating how many units of one good can be exchanged for one unit of another.

Price

The monetary value anticipated, needed, or dispensed for acquiring something.