Assignment

Split-Off

ParentCo sells street vending carts and has been in business for 10 years. The subsidiary, SubCo, has been in the business of selling refrigerated vending carts for 8 years. You are a 50% partner of ParentCo with Able. The basis of your shares is $80,000 while Able's basis is $60,000. On April 10, 20x1, ParentCo allocated 100% of SubCo stock to shareholder Able in exchange for the Able'sParentCo shares. Able'sParentCo shares are subsequently cancelled. There is a bona fide business purpose for this exchange. At the end of 20x1, ParentCo has $150,000 of E&P. The fair market value of ParentCo stock is $3,000/share and the fair market value of SubCo is $1,000/share.

a. What is the amount and character of the gain, loss or income that must be recognized by you as a result of the distribution of the SubCo stock?

b. What is the amount and character of the gain, loss or income that must be recognized by ParentCo as a result of the distribution of the SubCo stock?

c. What is Able's basis in the SubCo's stock?

d. When will Able's holding period for the SubCo stock begin?

Requirements:

Use the Excel Template (Attachment) for the Critical Thinking Assignment for this week. Clearly identify the requirement being addressed. Show or explain all calculations within the body of the submission document. This means that you must use formulas and links so that your thought process can be examined. Make good use of comments to convey your thought process as well.

No hard coding of solutions. Review the Critical Thinking grading rubric, which may be found in the Module 4 folder, to see how you will be graded on this assignment. Reach out to your instructor if you have questions about the assignment.

Attachment:- excel_attachment.xlsx