What gains are recognized by the liquidating corporation?
Not what you're looking for?
A cash method corporation adopts a plan of complete liquidation and distributes the following assets to its shareholders:
- A truck that was purchased for $25,000, is worth $18,000, and has a basis of $11,000.
- An installment note receivable with a remaining face amount of $20,000, resulting from a sale of a warehouse for $75,000 seven years ago in which the warehouse's basis at the time of sale was $25,000.
- Accounts receivable of $7,000.
- Supplies and small tools previously expensed, worth $350.
What gains are recognized by the liquidating corporation on the distributions in complete liquidation?
Purchase this Solution
Solution Summary
The solution analyzes the basis and gain for each type of asset and then explains the calculation and the law with regard to each transaction.
Solution Preview
The rules for a complete corporate liquidation state that property is deemed to have been sold at fair market value, and any gain or loss will be reported at the corporate level.
We can analyze the transactions as follows:
Asset FMV Adjusted basis Gain or Loss
Truck 18000 11000 7000
Installment note 20000 6667 13333
Accounts receivable 7000 0 7000
Supplies and small tools 350 0 350
Notes about the asset ...
Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Basics of corporate finance
These questions will test you on your knowledge of finance.