The founder followed through AC507's Unit 9 reorganization case study recognizes $1,200,000 of a $2,600,000 gain, because the merger qualifies under Section 368(a)(1)(A) and only the cash is boot. Searches like "ac 507 unit 9 assignment example", "ac507 unit 9 sample" and "ac507 unit 9 example" land here.
What a finished AC507 Unit 9 reorganization case study looks like
Five pages in case-study format: deal summary, qualification analysis, two shareholder schedules and a corporate note. The summary gives the buyer's equity value of [$900 million] and the founder's position, target shares with a basis of [$400,000] exchanged for [$1,800,000] of buyer stock and [$1,200,000] in cash. Qualification is tested against Section 368(a)(1)(A) and the continuity of interest regulations, which accept 60 percent stock consideration comfortably. The founder's schedule shows $2,600,000 realized, $1,200,000 recognized under Section 356(a)(1) as the lesser of gain and boot, and a new stock basis of $400,000 under Section 358. The employee who elected cash reports $120,000 of capital gain on a [$30,000] basis. The corporate note records no gain to the target under Section 361 and none to the buyer under Section 1032.
How a AC507 Unit 9 example is structured
The case study settles qualification before consequences, since a failed reorganization makes every shareholder's exchange fully taxable. Continuity of interest is measured on the consideration mix, continuity of business enterprise on the buyer's plan to keep the target's product line, and both regulations are cited. It then asks why the parties chose a direct merger. A reverse triangular merger under Section 368(a)(2)(E) would need at least 80 percent of target stock acquired for voting stock, which 40 percent cash defeats, and a Type B exchange permits no cash at all. Character comes next. Clark v. Commissioner supplies the test for whether boot is a dividend: treated as receiving only buyer stock and then redeemed, the founder falls from 0.3333 to 0.2003 percent, a 60 percent ratio that is substantially disproportionate, so the boot is capital gain. Basis and holding period close each schedule.
Does the merger qualify?
Sixty percent of the price in voting stock satisfies continuity of interest, and the buyer's decision to keep running the target's product line satisfies continuity of business enterprise.
Why not a triangular structure
Forty percent cash would defeat the 80 percent voting stock requirement of Section 368(a)(2)(E), and any cash at all would disqualify a stock-for-stock exchange.
Boot, and how much gain it pulls in
The founder realizes $2,600,000 but recognizes only the $1,200,000 of cash, and the rest of his gain waits in a $400,000 basis in buyer shares.
A dividend test on a hypothetical redemption
Under Clark, the founder's constructive interest in the buyer falls to about 60 percent of its prior level, so Section 356(a)(2) does not make the boot a dividend.
The cash-only holder
An early employee who elected cash sells outright, reporting $120,000 of capital gain against a [$30,000] basis, with no reorganization treatment at all.
Where marks go in AC507 Unit 9
Marks on this case study depend on qualification coming first and on the character question being asked. Papers that jump to gain computations without testing continuity of interest have assumed the conclusion. Treating the whole $2,600,000 as recognized, because some cash changed hands, misreads Section 356; recognizing the cash without comparing it to realized gain happens to work here but fails on facts where boot exceeds gain. Character is where many submissions stop short: calling boot capital gain without the Clark hypothetical leaves the grader nothing to check, and testing the redemption against the target rather than the buyer applies the approach Clark rejected. A basis computation that adds the cash rather than subtracting it is common. Ignoring the employee's cash-only election drops half of the shareholder analysis the prompt requests.
Get a AC507 Unit 9 example written to your instructions
Forward the Unit 9 deal terms, the consideration mix and each shareholder you are asked to follow, with basis and election, and include the rubric your instructor posted. The case study tests qualification before any gain, works each holder's schedule and notes the corporate side. Turnaround is 24-48h, and there is no fee for a first custom sample.
AC507 Unit 9 questions, answered
How much stock is enough for continuity of interest?
The regulations under Section 368 include an example treating 40 percent stock consideration as sufficient, and older Supreme Court authority accepted a similar proportion. Sixty percent sits comfortably above that. The example cites the regulation rather than a single percentage rule, because continuity is measured on value as of a specified signing date and a prompt can move the numbers close enough to the line to require that analysis.
Why is the founder's new basis equal to his old basis?
Section 358 starts from the basis surrendered, subtracts the cash received and adds the gain recognized. Here the cash and the recognized gain are both $1,200,000, so they cancel and the buyer shares take the [$400,000] basis of the old target shares. The $1,400,000 of unrecognized gain survives in the difference between that basis and the shares' [$1,800,000] value, deferred until he sells.
Does the target corporation pay tax on the merger?
No. In a qualifying merger the target is treated as exchanging its assets for the merger consideration and distributing it to shareholders, and Section 361 shields it from gain. The buyer recognizes nothing on issuing shares under Section 1032 and takes the assets at carryover basis under Section 362(b), with tax attributes following under Section 381. The corporate note states each of these briefly.