25 May Question 52. [LO 5] Shauna and Danielle decided to liquidate their
Question
52. [LO 5] Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions, Inc. (WFI). After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet.
FMV Adjusted Basis Appreciation
Cash $ 200,000 $ 200,000
Building 50,000 10,000 40,000
Land 150,000 90,000 60,000
Total $ 400,000 $ 300,000 $ 100,000
Under the terms of the agreement, Shauna will receive the $200,000 cash in exchange for her 50 percent interest in WFI. Shauna’s tax basis in her WFI stock is $50,000. Danielle will receive the building and land in exchange for her 50 percent interest in WFI. Danielle’s tax basis in her WFI stock is $100,000. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation.
a. What amount of gain or loss does WFI recognize in the complete liquidation?
b. What amount of gain or loss does Shauna recognize in the complete liquidation?
c. What amount of gain or loss does Danielle recognize in the complete liquidation?
d. What is Danielle’s tax basis in the building and land after the complete liquidation?
53. [LO 5] Tiffany and Carlos decided to liquidate their jointly owned corporation, Royal Oak Furniture (ROF). After liquidating its remaining inventory and paying off its remaining liabilities, ROF had the following tax accounting balance sheet.
FMV Adjusted Basis Appreciation (Depreciation)
Cash $ 200,000 $ 200,000
Building 50,000 10,000 40,000
Land 150,000 200,000 (50,000)
Total $ 400,000 $ 410,000 $ (10,000)
Under the terms of the agreement, Tiffany will receive the $200,000 cash in exchange for her 50 percent interest in ROF. Tiffany’s tax basis in her ROF stock is $50,000. Carlos will receive the building and land in exchange for his 50 percent interest in ROF. His tax basis in the ROF stock is $100,000. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation.
a. What amount of gain or loss does ROF recognize in the complete liquidation?
b. What amount of gain or loss does Tiffany recognize in the complete liquidation?
c. What amount of gain or loss does Carlos recognize in the complete liquidation?
d. What is Carlos’s tax basis of the building and land after the complete liquidation?
e. What amount of gain or loss does ROF recognize in the complete liquidation?
f. What amount of gain or loss does Tiffany recognize in the complete liquidation?
g. What amount of gain or loss does Carlos recognize in the complete liquidation?
h. What is Carlos’s tax basis in the building and land after the complete liquidation?
54. [LO 5] Jefferson Millinery, Inc. (JMI) decided to liquidate its wholly-owned subsidiary, 8 Miles High, Inc. (8MH). 8MH had the following tax accounting balance sheet.
FMV Adjusted Basis Appreciation
Cash $ 200,000 $ 200,000
Building 50,000 10,000 40,000
Land 150,000 90,000 60,000
Total $ 400,000 $ 300,000 $ 100,000
a. What amount of gain or loss does 8MH recognize in the complete liquidation?
b. What amount of gain or loss does JMI recognize in the complete liquidation?
c. What is JMI’s tax basis in the building and land after the complete liquidation?
55. [LO 5] Jefferson Millinery, Inc. (JMI) decided to liquidate its wholly-owned subsidiary, 8 Miles High, Inc. (8MH). 8MH had the following tax accounting balance sheet.
FMV Adjusted Basis Appreciation
Cash $ 200,000 $ 200,000
Building 50,000 10,000 40,000
Land 150,000 200,000 (50,000)
Total $ 400,000 $ 410,000 $ (10,000)
a. What amount of gain or loss does 8MH recognize in the complete liquidation?
b. What amount of gain or loss does JMI recognize in the complete liquidation?
c. What is JMI’s tax basis in the building and land after the complete liquidation?
Comprehensive Problems
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