Korat Corporation and Snow Corporation Enter into an Acquisitive "Type

question 69

Multiple Choice

Korat Corporation and Snow Corporation enter into an acquisitive "Type D" reorganization.Xin currently holds a 20-year, $10,000 Snow bond paying 4% interest.There are 8 years until the bond matures.In exchange for his Snow bond, Xin receives an 8 year $16,000 Korat bond paying 2.5% interest.Xin thinks this is fair because he will still receive $400 of interest each year and both bonds mature on the same date.How does Xin treat this transaction on his tax return?

• A)Xin recognizes no gain or loss on the exchange of bonds.
• B)Xin recognizes $750 gain each year for the next 8 years.
• C)Xin recognizes $6,000 capital gain.
• D)Xin recognizes $6,000 ordinary gain.
• E)None of the above.

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Definitions:

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