Question

X-Co. adopts a plan of complete liquidation and makes the following pro rata distributions to its shareholders (assume all are individuals): (A) Cash: $70,000; (B) Inventory: FMV $20,000 Basis $20,000 Mortgage $10,000; (C) Inventory: FMV $30,000 Basis $15,000 Mortgage $40,000; (D) Capital Asset: FMV $500 Basis $2,800; (Assume that X Co. acquired the property distributed to D in a Sec. 351 transfer 6 months before adopting the plan of liquidation when the FMV of the property was $800 and X Co.’s basis was $2,800). (E) Capital Asset: FMV $10,000 Basis $4,000. Each shareholder had a $1,000 basis in the X Co. stock. A is ? B is ? C is? D is? E is?

Answer 1

A is $ 69000 capital gain.

Calculation-

Cash received = 70000

Basis in stock = 1000

Gain = 70,000 - 1000 = 69000

B is $ 10000 ordinary income.

Calculation -

Inventory (FMV) = 20000

Mortgage = 10000

Gain= 20,000 - 10,000 = 10,000

Answer C is loss of $10,000

Calculation -

Inventory (FMV) = 30,000

Mortgage = 40000

Gain = 30,000-40,000 = -10,000

B is loss of $2300.

Calculation-

Inventory (FMV)=500

Mortgage = 2800

Gain = 500-2800 = -2300

E is gain of $6000.

Calculations are as follows,

Inventory (FMV)= 10000

Mortgage = 4000

Gain = 10,000 - 4,000 = 6,000

The basis for C is 15,000