64] Gleim #: 14.3.70 Cat Corporation, a calendar-year, accrual-basis taxpayer, d

Question

64] Gleim #: 14.3.70 Cat Corporation, a calendar-year, accrual-basis taxpayer, distributed shares of Fish Corporation stock to Cat’s employees in lieu of salaries. The salary expense would have been deductible as compensation if paid in cash. On the date of the payment, Cat’s adjusted basis in the Fish Corporation stock distributed was $25,000, and the stock’s fair market value was $85,000. What is the tax effect to Cat Corporation? $25,000 deduction. $25,000 deduction; $60,000 recognized gain. $85,000 deduction. $85,000 deduction; $60,000 recognized gain.

Explanation / Answer

$60,000 recognized gain

As stock distributed was $25,000 and its Market Value was $85,000

Tax effect to Cat corporation $85,000-$25,000=$60,000 gain

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