Question

Jefferson Millinery, Inc. (JMI) decided to liquidate its wholly owned subsidiary, 8 Miles High, Inc. (8MH). 8MH had the following tax accounting balance sheet:

	FMV			Adjusted Basis			Appreciation
Cash	$	252,250		$	252,250
Building		86,750			28,250			58,500
Land		165,500			101,000			64,500
Total	$	504,500		$	381,500		$	123,000
What amount of gain or loss does 8MH recognize in the complete liquidation? b. What amount of gain or loss does JMI recognize in the complete liquidation?

Answer 1

8MH recognises the excess of sale proceeds over cost 123000 as liquidatory gain as shows it as payable to its holding company.

Consideration A/c Dr 504500

To cash a/c 252250

To building a/c 28250

To land a/c 101000

To JMI (capital) a/c 123000

(Being assets transfeerd to transferor)

JMI (capital) a/c Dr 504500

To consideration a/c 504500

Being books closed by trasferring consideration to capital a/c

B) JMI recognises the gain of 123000 in its consolidated accounts

Consideration A/c dr. 504500

To 8MH (subsidary) A/c 381500

To profit on sale of sub A/c 123000

(Being profit recognised on sale of sudsidary)