Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for stock exchange

Accounting Jan 16, 2021

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for stock exchange. In exchange, he received stock in Apricot with a fair market value of $447,500. Julian's tax basis in the Lemon stock was $895,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

$447,500 loss recognized and a basis in Apricot stock of $447,500.
No loss recognized and a basis in Apricot stock of $895,000.
$447,500 loss recognized and a basis in Apricot stock of $895,000.
No loss recognized and a basis in Apricot stock of $447,500.

Expert Solution

There will be a loss of $ 447500 when Julian had sold the stock. But in the given scenario there is only transfer of shares and hence no loss will be recognized on transfer of shares.

Correct answer is

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