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This question was created from CH7_ Corp acquisitions and reorgs Problems_Spring2016(1) (1)


Split-Up - Jean Corporation has two divisions - home Cookware and electric home
appliances. Bill and Bob Jean own all of Jean Corporation's single class of stock. Bill, the
older brother, owns 70% of the Jean stock, and Bob owns the remaining 30%. Bill and
Bob's adjusted bases in their Jean stock are $700,000 and $300,000, respectively. They
have owned the stock for eight years. The divisions have the following assets:
FMV Assets
Adjusted Basis
Home Appliances
To divide the business, Jean transfers the cookware assets to Cookware Corporation in
exchange for all of Cookware stock. Jean transfers the home appliance assets to Home
Appliance Corporation in exchange for all of Home Appliance stock. Jean transfers the
Cookware stock to Bill in exchange for all of his Jean stock. Jean transfers the Home
Appliance stock to Bob in exchange for all of his Jean stock. Finally, Jean liquidates with
its remaining cash used to pay off its liabilities.
(a) What gain or loss is recognized on the transfer of the Jean assets to Cookware
and Home Appliance? What basis do the two corporations take in the assets
(b) What gain or loss do Bill and Bob recognize when they exchange their Jean
stock for the Cookware and Home Appliance stock? What basis does each
shareholder take in his or her new stock?

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