Cat Corporation is acquiring Bird Corporation by exchanging 100,000 shares of Cat stock and $80,000 cash for all of Bird's assets (valued at $500,000), liabilities ($200,000) and accumulated earnings and profits ($120,000). Betty purchased 40% of Bird five years ago for $60,000 and Keith purchased the remaining 60% for $90,000.

Required:

1. What is the amount and character of the gain or loss Betty and Keith recognize, assuming that the reorganization qualifies as a "Type A" reorganization?

2. What is the basis in their new Cat Corporation stock?

Answer rating: 100% (QA)

1 Betty and Keith recognize no gain or loss on the ex... View the full answer