question archive Townsend, the sole shareholder of Pruett Corporation, has a $480,000 basis in his stock
Townsend, the sole shareholder of Pruett Corporation, has a $480,000 basis in his stock
Subject:AccountingPrice:2.84 Bought3
Townsend, the sole shareholder of Pruett Corporation, has a $480,000 basis in his stock. He exchanges his Pruett stock for $600,000 of Rogers Corporation voting common stock plus land with a fair market value of $100,000 and basis of $25,000. Pruett distributed the land to Townsend. This exchange qualifies under § 368.
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What is Townsend’s recognized gain/loss from the reorganization? Prepare your solution using spreadsheet software such as Microsoft Excel.
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What is the gain/loss recognized by Pruett Corporation and Rogers Corporation on the reorganization?
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What is Townsend’s basis in the Rogers stock and the land received?
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Townsend's gain from reorganization:
| Realized Gain | Recognized Gain | Postponed Gain | Basis in Rogers Stock |
| $700,000 | $100,000 | $220,000 | $600,000 |
| 480,000 | 100,000 | 120,000 | |
| $220,000 | $120,000 | $480,000 |
Working notes:
Price of stock = $600,000 + $100,000 =700000
Realized gain = $700,000 - $480,000 = $220,000
Postponed gain = $220,000 - $100,000 = $120,000
Basis in Roger's stock = $600,000 - $120,000 = $480,000
Rogers reported gain = Value of land - Basis of land
= $100,000 - $25,000 = $75,000
No gain to be reported by Pruett Corporation.
Townsend’s basis in the Roger stock = $480,000
Townsend"s basis in land received = $100,000.(its value)
