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Exam 1: Corporate Liquidating Distributions

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Question 1

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Lake Corporation distributes a building used in its business to Sandy in exchange for all of her Lake stock.Sandy's basis in her stock is $30,000 and the property she receives has a $90,000 FMV.As part of the distribution,Sandy assumes a liability associated with the property of $65,000.The property's basis prior to the liquidating distribution was $25,000.What are the tax consequences of the distribution to Sandy? To Lake Corporation?

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Sandy will recognize a $5,000 capital lo...

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Question 2

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The general rule for tax attributes of liquidating corporations is

A) they disappear when the liquidation is complete.
B) they carry over for five years.
C) they disappear only for controlled subsidiary corporations.
D) they carry over for an indefinite period of time.

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Question 3

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Lake City Corporation owns all the stock in Columbia Corporation.Pursuant to a plan of complete liquidation,Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City.Columbia's gain with respect to the distribution will be

Toby made a capital contribution of a pretzel maker having a $2,000 adjusted basis and a $200 FMV to Keke Corporation in exchange for additional stock last year.Later that same year,Keke sold the pretzel maker for $300.This year,Keke adopted a plan of liquidation.Previously,Keke had never used the pretzel maker in connection with the conduct of its trade or business.The sale was reported on Keke's current tax return.What reporting option does Keke Corporation not have because of its plan of liquidation?

Key Corporation distributes a patent with an indeterminable value to Gary as part of a plan of complete liquidation.In addition,Gary receives $40,000 cash and land with a $70,000 FMV and a $30,000 adjusted basis.Gary's basis in the Key stock (a capital asset) surrendered is $120,000.If Gary relies on the open transaction doctrine,at the liquidation date he must recognize a

A subsidiary must recognize depreciation recapture income when the subsidiary is liquidated into the parent.

Identify which of the following statements is true.

What event determines when a cash or accrual method of accounting taxpayer reports a liquidating distribution?

Santa Fe Corporation adopts a plan of liquidation late in the current tax year in which it expects to earn $100,000 profits from its operating activities.Santa Fe's operating activities are discontinued before the end of the year.Pursuant to the liquidation,it distributes assets,which result in the recognition of $30,000 of ordinary losses.Santa Fe also distributes assets that have appreciated in value,which results in the recognition of $30,000 of ordinary gains.Generally,Santa Fe Corporation should distribute

Liquidation and dissolution have the same legal meaning.

What attributes of a controlled subsidiary corporation are carried over to the parent when the subsidiary is liquidated?

Greg,a cash method of accounting taxpayer,owns 100 shares of Parker Corporation stock with a basis of $20,000.Greg receives two liquidating distributions of $8,000 on March 3 of last year,and $8,000 on August 8 of this year.The amount of the second distribution is not known until June 15 of this year.Greg recognizes

How is the gain/loss calculated if a shareholder has acquired stock at different times and at varying prices?

Bluebird Corporation owns and operates busses and has decided to liquidate its operations.Victor,who owns 80% of the company's stock,will receive all of the busses,repair parts inventory,and all tools and equipment.He plans to start a bus company in another town.Penny,who owns 20% of the stock,wants nothing to do with the new bus business and will receive a cash distribution.Bluebird will incur about $20,000 of expenses in connection with the liquidation.What tax issues should Victor,Penny,and Bluebird consider with respect to the liquidation?

Prime Corporation liquidates its 85%-owned subsidiary Bass Corporation under the provisions of Secs.332 and 337.Bass Corporation distributes land to its minority shareholder,John,who owns a 15% interest.The property received by John has a $55,000 FMV.The land was used in the Bass Corporation's business and has a $65,000 adjusted basis and is subject to a $10,000 liability,which is assumed by John.John's basis in his stock is $25,000.What gain or loss will John and Bass Corporation recognize on the distribution of the land?

When a liquidating corporation pays off an unsecured debt obligation,

In a Sec.332 liquidation,what bases do both the parent and minority shareholders take in the assets received?

Identify which of the following statements is false.

A subsidiary recognizes no gain or loss on a distribution to a parent corporation owning more the majority of the subsidiary's stock in a complete liquidation.

Dusty Corporation owns 90% of Palace Corporation's stock and Susan owns the remaining stock.Dusty Corporation's stock basis is $300,000 and Susan's stock basis is $20,000.Under a plan of complete liquidation,Dusty Corporation receives property with a $400,000 adjusted basis and a $540,000 FMV and Susan receives property with a $20,000 adjusted basis and a $60,000 FMV.The bases of the properties are: