As of June 30, 2022, Horizon Corp. was owned 70% by Adams and 30% by Black. Horizon had the following assets:

Adjusted Basis FMV

Equipment $ 20,000 $ 60,000

Land 80,000 150,000

Inventory 50,000 40,000

Horizon also had liabilities equal to $20,000. Pubco, a publicly held corporation whose stock trades on the NYSE, wished to acquire Horizon's assets. Pubco and Horizon entered into an agreement whereby Pubco acquired all of Horizon's assets in exchange for $205,000 of Pubco stock, $25,000 of cash and the assumption of Horizon's liabilities.

Pursuant to the plan, upon Horizon's receipt of the Pubco stock and cash, it was liquidated and the stock and cash were distributed to Adams and Black. Adams received $145,000 of stock and $16,000 of cash and Black received $60,000 of stock and $9,000 of cash.

Adams's basis in her Horizon Corp. stock was equal to $107,500 and Black's basis in his Horizon Corp. stock was equal to $74,000.

a) What is the nature of the above transaction (i.e., it is an attempt at an A, B, C or D reorganization) and is it a good (non-recognition) or bad (non-qualifying) reorganization? Explain your answers.

Regardless of your answer to part a), above, in answering parts b) through f) assume that the above transaction qualifies as a good reorganization.

b) Which of the corporate entities, if any, should recognize a gain or loss as a result of the above transactions? If either or both of the corporate entities must recognize gain or loss, what is the amount of that gain or loss?

c) What is the amount of Adams' realized gain or loss as a result of the above transaction? How much, if any, of that realized gain or loss should Adams recognize?

d) What is Adams' adjusted basis in his Pubco stock?

e) What is the amount of Black's realized gain or loss as a result of the above transaction? How much, if any, of that realized gain or loss should Black recognize?

f) What is Black's adjusted basis in his Pubco stock?

Answer rating: 100% (QA)

a The nature of the transaction is a Type B reorganization It involves the acquisition of assets by ... View the full answer