P Corporation, a widely held conglomerate, has 200,000 shares of a single class of common...
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P Corporation, a widely held conglomerate, has 200,000 shares of a single class of common stock outstanding. Each share is worth $90. P has E&P of $900,000. P plans on merging with S corporation, which manufactures furniture. Ss 2,000 shares are owned equally by Isabel, James, Katy, Larry and Maria. Isabel and James each paid $50 per share while the rest paid $120 per share. Ss stock is now worth $100 per share. S has E&P of $250,000. Isabel and Katy are also creditors of S. Each paid $75,000 for Ss 10 year bonds. The bonds have a $75,000 face and pay 8%interest and are currently worth $90,000 each. Under the
Terms of the merger agreement, each S shareholder receives 500 shares of P Corporation. Each S creditor receives 1,200 of S stock.
a) What gain or loss is realized and recognized by the shareholders and creditors of S?
b) What is each shareholders basis for the stock received?
c) What are the tax consequences to P and S?
d) Answer each of the questions above, if each S shareholder receives 400 shares of B shares and each creditor receives
1,250 shares of P stock for its bonds.
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