Gnat Corporation and Catcher Corporation Would Like to Merge into One

question 1

Multiple Choice

Gnat Corporation and Catcher Corporation would like to merge into one company. Gnat has a net value of $700,000 and Catcher's net value is $300,000. They were considering creating a new corporation called GnatCatcher, but Catcher owns valuable patents that cannot be transferred. Therefore, Gnat will transfer all of its assets to Catcher in exchange for 70% of its stock. Gnat will then liquidate by exchanging the Catcher stock with its shareholders for their stock in Gnat. Which, if any, of the following statements is correct?

• A) This transaction qualifies as a "Type A" consolidation reorganization.
• B) This transaction qualifies as a "Type B" reorganization.
• C) This transaction qualifies as a "Type C" reorganization.
• D) This transaction does not qualify as a reorganization, because Gnat, the larger corporation, rather than Catcher, the smaller corporation, ceases to exist after the transaction.
• E) None of the above statements is correct.