Dipper Corporation Is Acquiring Bulbul Corporation by Exchanging 220,000 Shares

question 9

Essay

Dipper Corporation is acquiring Bulbul Corporation by exchanging 220,000 shares of Dipper stock and $80,000 cash for all of Bulbul's assets (valued at $500,000), liabilities ($200,000), and accumulated earnings and profits ($120,000). Betty purchased 40% of Bulbul five years ago for $60,000, and Keith purchased the remaining 60% for $90,000.
What is the amount of the gain or loss that Betty and Keith recognize (if any), assuming that the exchange qualifies as a § 368 reorganization? What is the basis in their new Dipper stock?

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Definitions:

Carbonic Anhydrase

An enzyme that catalyzes the conversion of carbon dioxide and water to carbonic acid, playing a critical role in respiration and the acid-base balance in blood.

Carbon Dioxide

An invisible, unscented gas created by the combustion of carbon-based substances and during breathing. It occurs naturally in the environment and is consumed by plants for photosynthesis.

Erythrocyte

A type of blood cell that is typically disc-shaped and responsible for transporting oxygen and carbon dioxide throughout the body; also known as a red blood cell.

Voice Box

The larynx, an organ in the top of the neck involved in breathing, producing sound, and protecting the trachea against food aspiration.