Question

X Corp’s balance sheet shows the following:                                   &nbsp

X Corp’s balance sheet shows the following:

                                            BASIS                                   FMV

Cash                                   $10,000                                    $10,000

Equipment -net                     40,000                                      50,000

Land 1                                100,000                                     150,000

Land 2                                150,000                                     125,000

          Total                        $300,000                                    $335,000

All of the stock is owned by A. Her basis is $120,000.

Answer the following questions based on the above information.

  1. Calculate the gain or loss to X Corp. if X liquidates and distributes all assets to A.
  2. Calculate the gain or loss to A on the liquidation in Question A.
  3. Corporation Y purchases the stock from A for $335,000. Y immediately liquidates X Corporation. How much gain or loss is recognized by X and what are the bases of the assets to Y?
  4. Same facts as C except Y Corp. made a Section 338 election. Assume a corporate tax rate of 21 %.How much gain or loss is recognized and what are the bases of the assets acquired by Y?
  5. What factors should a buyer and seller consider in evaluating whether to make a Section 338 election?
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