X Co. adopts a plan of complete liquidation and makes the following pro rata distributions to its shareholders (assume all are individuals):
A Cash: $70,000;
B Inventory: FMV-$20,000 Basis-$20,000 Mortgage-$10,000;
C Inventory: FMV-$30,000 Basis-$15,000 Mortgage-$40,000;
D Capital Asset: FMV-$500 Basis-$2,800;
(Assume that X Co. acquired the property distributed to D in a Sec. 351 transfer 6 months before adopting the plan of liquidation when the FMV of the property was $800 and X Co.’s basis was $2,800).
E Capital Asset: FMV-$10,000 Basis-$4,000.
Each shareholder had a $1,000 basis in the X Co. stock.
X Co.’s recognized gain or loss on the distribution to:
A is: a. 0; b. $70,000 capital gain; c. $69,000 capital gain; d. None of the above.
B is: a. 0; b. $10,000 ordinary income; c. $20,000 ordinary income; d. None of the above.
C is: a. $25,000 ordinary income; b. $35,000 ordinary income; c. $65,000 ordinary income; d. None of the above.
D is: a. 0; b. $-2,300 capital loss; c. $-300 capital loss; d. None of the above.
E is: a. 0; b. $10,000 capital gain; c. $6,000 capital gain; d. None of the above."
Document Preview: X Co. adopts a plan of complete liquidation and makes the following pro rata distributions to its shareholders (assume all are individuals): A Cash: $70,000; B Inventory: FMV-$20,000 Basis-$20,000 Mortgage-$10,000; C Inventory: FMV-$30,000 Basis-$15,000 Mortgage-$40,000; D Capital Asset: FMV-$500 Basis-$2,800; (Assume that X Co. acquired the property distributed to D in a Sec. 351 transfer 6 months before adopting the plan of liquidation when the FMV of the property was $800 and X Co.’s basis was $2,800). E Capital Asset: FMV-$10,000 Basis-$4,000. Each shareholder had a $1,000 basis in the X Co. stock. X Co.’s recognized gain or loss on the distribution to: A is: a. 0; b. $70,000 capital gain; c. $69,000 capital gain; d. None of the above. B is: a. 0; b. $10,000 ordinary income; c. $20,000 ordinary income; d. None of the above. C is: a. $25,000 ordinary income; b. $35,000 ordinary income; c. $65,000 ordinary income; d. None of the above. D is: a. 0; b. $-2,300 capital loss; c. $-300 capital loss; d. None of the above. E is: a. 0; b. $10,000 capital gain; c. $6,000 capital gain; d. None of the above."