Question

Company Y is liquidating. It has two shareholders, Amanda and Heather. Amanda owns 60 shares (with a $6,000 a/b) and Heather owns 40 shares (with a $3,000 a/b). Company Y will distribute the building to Amanda and the cash and goodwill to Heather.

                                                      A/B                 FMV

         Cash                                     2,000               2,000

         Building                               6,000               8,000

         Goodwill                              2,000               1,000

         Gain/Loss to Company Y: ________________________________________

         Gain/Loss to A: ______________________________________________

         Gain/Loss to H: ______________________________________________

         Adjusted basis Amanda will have in the building: ______________________

Answer 1

Ans:-

• Liquidation value is the total worth of a company's physical assets if it were to go out of business and its assets sold.
• Liquidation value is determined a company's assets such as equipment, inventory. Intangible assets are excluded from a company's liquidation value.

​​​​​​​1) gain or loss to company's Y:-

Company Y total assets (book value) =

Cash $2000+building $6000+goodwill $0=$8000

Less:- share capital of A and B $6000+$3000=$9000

= loss of $1000 to company's Y

2)Gain or loss to A:-

Building received from company Y(fair value) =$8000

Less:- amount invested in Y=$6000

=gain to A $2000

3)gain or loss to H:

Total assets received from company Y:

Cash $2000

Goodwill $0(nil)

Less:- amount invested in Y=$3000

=​​​​​​​loss to H $1000