Quadesha, Chanteia and Xiang each acquires a one-third Autry Corporation stock.
ID: 2544550 • Letter: Q
Question
Quadesha, Chanteia and Xiang each acquires a one-third Autry Corporation stock. Each shareholder has a $35,000 basis in their stock. Rhynie Corporation purchases Autry Corporation assets for $200,000 in cash and $300,000 Rhynie notes (three notes, $100,000 each). Autry Corporation has cash of $80,000 and the basis in assets sold is $310,000. Autry also has $120,000 of liabilities. Quadesha, Chanteia and Xiang decide to liquidate Autry after the assets are sold. Analyze this transaction for each person and each corporation. How would your answer change if Rhynie Corporation purchased the stock for $380,000?
Explanation / Answer
1) Sale consideration = 500,000
For Autry Corporation:
Net profit on sale will be recognized = 200000+300000-(80000+310000-120000) = 230000
For Rhynie Corporation: Purchase of assets and liabilities partially with cash and partially with notes for a consideration of 500000:
For each of the shareholder: They will each recieve one-third of the net profit of Autry corporation for liquidating their shareholding:
2) Sale consideration = 380,000: (assume 80,000 cash, 300,000 in notes)
For Autry Corporation:
For Rhynie corporation:
For each of the shareholders:
Journal Dr Cr Cash 120,000 Rhynie Notes 300,000 Liabilities 120,000 To profit on sale 230,000 To other assets 310,000