What are the tax consequences of the preferred stock

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1- Larry has 100,000 shares outstanding that are worth $10 per share. It uses 32% of its stock, plus $80,000 to acquire Price Corporation in a Type A reorganization. Price's assets are valued at $400,000, and its accumulated earnings and profits are $25,000 at the time of the reorganization. The Larry shares and cash are distributed to the Price shareholders as follows. Jake (owning 62.5% of Price) receives 18,000 shares (value $180,000) and $70,000. Kara (owning 37.5% of Price) receives 14,000 shares (value $140,000) and $10,000. Jake and Kara each recognize gains to the extent of the cash they received. What is the character of Jake and Kara's gains?

2 - Fred is the sole shareholder of Ponce Corporation, having a basis of $90,000 in 1,000 shares of Ponce common stock. Last year, Ponce (E & P of $500,000) issued a dividend of 2,000 shares of preferred stock to Fred. On the date of distribution, the fair market values per share of the common and preferred stocks were $160 and $20, respectively. In the current year, Ponce (E & P of $720,000) redeems all of Fred's preferred stock for its fair market value of $40,000.
(I) What are the tax consequences of the preferred stock dividend to Fred?
(II) What are the tax consequences of the stock redemption to Fred?
(III) What are the tax consequences of the stock redemption to Ponce?

Reference no: EM13531380

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