I need help with problem C 6-41 from the textbook Marsha owns 100% of Gamma Corp

Question

I need help with problem C 6-41 from the textbook

Marsha owns 100% of Gamma Corporations common stock. Gamma is an accrual basis, calendar year corporation. Marsha formed the corporation six years ago by transferring $250,000 of cash in exchange for the Gamma stock. Thus, she has held the stock for six years and has a $250,000 adjusted basis in the stock. Gamma's balance sheet at January 1 of the current year is as follows:

Cash $400,000 basis $400,000 FMV

Marketable Securities $50,000 basis $125,000 FMV

Inventory $300,000 basis $350,000 FMV

Equipment $200,000 basis $275,000 FMV

Building $500,000 basis $750,000 FMV

TOTAL $1,450,000 basis $1,900,000 FMV

Accounts Payable $175,000 basis $175,000 FMV

Common Stock $250,000 basis $1,725,000 FMV

Retained Earnings (and E&P) $1,025,000 basis

Total $1,450,000 basis $1,900,000 FMV

Gamma has held the marketable securities for two years. In addition, Gamma has claimed &60,000 of MACRS depreciation on the machinery and $90,000 of straight line depreciation on the building. On January 2 of the current year, Gamma liquidates abd distributes all property to Marsha except that Gamma retains cash to pay the accountspayable and any tax laibility resulting from Gamma's liquidation. Assume that Gamma has no other taxable income or loss. Determine the tax consqequences to Gamma and Marsha.

Explanation / Answer

Tax consequences of a Corporate Liquidation. Marsha owns 100% of Gamma Corporation's common stock. Gamma is an accrual basis, calendar year corporation. Marsha formed the corporation six years ago transferring $250,000 of cash in exchange for the Gamma stock. Thus, she has held the stock for six years and has a $250,000 adjusted basis in the stock. Gamma's balance sheet a January 1 of the current year is a follows: Assets Basis FMV Cash $400,000 $400,000 Marketable securities 50,000 125,000 Inventory 300,000 350,000 Equipment 200,000 275,000 Building 500,000 750,000 Total 1,450,000 1,900,000 Liabilities and Equity Accounts payable $175,000 $175,000 Common Stock 250,000 1,725,000 Retained earnings (and E&P) 1,025,000 Total 1,450,000 1,900,000 Gamma has held the marketable securities for two years. In addition, Gamma has claimed $60,000 of . MACRS depreciation on the machinery and $90,000 of straight-line depreciation on the building. On January 2 of the current year, Gamma liquidates and distributes all property to Marsha except that Gamma retains cash to pay the accounts payable and any tax.

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