XYZ Corporation distributed land Jim, its sole shareholder, in a liquidating dis
ID: 341330 • Letter: X
Question
XYZ Corporation distributed land Jim, its sole shareholder, in a liquidating distribution. At the time of the distribution, the land had a fair market value of $120,000 and XYZ Corporation’s adjusted basis in the land was $100,000. The land was encumbered by a $140,000 mortgage, which mortgage was assumed by the shareholder. How much gain did XYZ Corporation recognize as a result of the distribution? A. 0.
B. $20,000.
C. $40,000.
D. $100,000.
Question 17
FAS Inc. had one class of stock outstanding. The one class of stock was owned 50 percent by Fred and 25 percent by each of Fred’s two sons. In the current taxable year, FAS Inc. redeemed 25 percent of Fred’s 50 percent, and in exchange for the stock, FAS Inc. distributed to Fred a building that had an adjusted basis to FAS Inc. of $10,000 and a fair market value of $50,000. Assume that FAS Inc.’s current earnings and profits were $200,000, there were no accumulated earnings and profits, and Fred’s total basis in his stock before the redemption was $20,000. What is Fred’s basis in his remaining stock after the redemption, and what is his basis in the building distributed to him?
A. Stock basis: $10,000; building basis: $10,000.
B. Stock basis: $10,000; building basis: $50,000.
C. Stock basis: $20,000; building basis: $10,000.
D. Stock basis: $20,000; building basis: $50,000.
Explanation / Answer
Answer to question:
Answer to the question is option B i.e $ 20000, calculated as $120000 ( Fair market value) less $100000 (Assets basis point)
Answer to question 17:
Answer to above question is option D i.e. Stock basis: $20,000; building basis: $50,000
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