Question

Marcia is a 50 percent shareholder of Chevez Corp., which is in the process of liquidation....

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.

Homework Answers

Answer #1
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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