Jed acquired 25% of the stock of Alpha Corporation (basis of $100,000) 12 years ago, and the other 75% was purchased by Zia (basis of $510,000) three years ago. Jed also holds a 10 year, $150,000 Alpha bond paying 6% interest. Alpha enters into a tax free consolidation with Beta Corporation, in which Jed will receive an 8% interest in the new Alpha Beta Corporation (value $144,000) plus $36,000 and Zia will receive a 27% interest (value $486,000) plus $54,000 of land. Alpha’s basis in the land is $35,000. Jed also will exchange his $150,000 Alpha bond for a 10 year, $155,000 Alpha Beta bond paying 5.8% interest. Before the reorganization or distributions to its shareholders, Alpha’s value is $720,000, and Beta’s value is $1,170,000.
a. What are Jed’s and Zia’s bases in their new Alpha Beta stock?
b. What is the amount of gain (loss) recognized by Jed, Zia, Alpha, and Beta on the reorganization?
c. Diagram the consolidation of Alpha and Beta Corporation.