Answer to Question #195585 in Accounting for Yale

Question

Zebra Corporation transfers assets with a $120,000 basis and a $250,000 FMV to Hat Corporation for common stock worth $200,000 and cash of $50,000 . The exchange qualifies as a tax- free reorganization. Zebra Corporation distributes the stock and cash to its shareholders pursuant to its liquidation. How much gain must Zebra Corporation recognize?

Answer 1

Solution:

Zebra Corporation should recognize gains worth $130,000

This is calculated as follows:

FMV Value - Basis value

= 250,000 – 120,000 = $130,000

Capital gain to be recognized = $130,000