QUESTION 19 A shareholder bought 10,000 shares of Amazon Corporation for $30,000

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QUESTION 19 A shareholder bought 10,000 shares of Amazon Corporation for $30,000 several years ago. When the stock is valued at $120,000, Amazon redeems the shares in exchange for 2,000 shares of Tattoo Corporation stock and a $12,000 Tattoo bond. This transaction meets the requirements of S 368. The shareholder has a basis in the Tattoo stock of QUESTION 20 Bruno Corporation merges into Zeus Corporation by exchanging all of its assets for 600,000 shares of Zeus stock valued at $1 per share and $200,000 cash. Wanda, the sole shareholder of Bruno, surrenders her Bruno stock (basis $900,000) and receives all of the Zeus stock transferred to Bruno plus the $200,000. Wanda recognizes a gain of

Explanation / Answer

19. The shareholder’s basis in the Tattoo stock = ($1200,000 value of Coral – $12,000 bond received) –postponed gain
Here, postpone gain= 120,000/ 10,0000 - 30,000/ 10,000 shares = 12-3 = $9 per share
= $108,000 - $9*2,000 shares = $90,000

20. Wanda has a realized loss = $900,000 - $200,000 cash received = $700,000- value of assets 600,000 = $100,000

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