Marcia is a 50 percent shareholder of Chevez Corp., which is in the process of liquidation. Marcia’s basis for her stock is $25,000. Chevez’s balance sheet on the date of liquidation is a follows:
Assets |
Basis |
Value |
Cash |
$32,000 |
$32,000 |
100 shares of Public Co. |
$20,000 |
$6,000 |
Accounts receivable |
$200,000 |
$170,000 |
Land |
$50,000 |
$300,000 |
Building (depreciated straight line) |
$246,000 |
$500,000 |
Totals |
$548,000 |
1,008,000 |
Equities |
Value |
|
Mortgage on real estate |
$310,000 |
|
Unsecured liabilities |
$182,000 |
|
Capital Stock |
$10,000 |
|
Paid-in capital |
$30,000 |
|
Earnings and profits |
$16,000 |
|
Total |
$548,000 |
If Maria receives her 50 percent share of all assets and liabilities, determine her gain and her basis in each asset received as a result of the liquidation. Assume that Chevez’s tax rate is 21 percent but that no tax was paid by Chevez.
Book Value Calculation | $ |
Total Assets | 548000 |
Less - Mortgage on real estate | 310000 |
Less - Unsecured liabilities | 182000 |
Book Value | 56000 |
Adjusted Book Value Calculation | $ |
Total assets (now higher) | 1008000 |
Less Long-Term Debt | 310000 |
Less Short Term Debt | 182000 |
Adjusted Book Value | 516000 |
Profit on sale | 460000 |
Tax on profit on sale | 96600 |
Her share | 258000 |
Her gain | 230000 |
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