Pursuant to a complete liquidation, Carrot Corporation distributes to its shareholders real estate held as an investment (basis of $650,000, fair market value of $880,000).

(a) Determine the gain or loss recognized by Carrot on the distribution if no liability is involved.

(b) Determine the gain or loss recognized by Carrot on the distribution if the real estate is subject to a liability of $690,000.

(c) Determine the gain or loss recognized by Carrot on the distribution if the real estate is subject to a liability of $885,000.

Question

Helena Trevino

Business

24 February, 00:20

Pursuant to a complete liquidation, Carrot Corporation distributes to its shareholders real estate held as an investment (basis of $650,000, fair market value of $880,000).

(a) Determine the gain or loss recognized by Carrot on the distribution if no liability is involved.

(b) Determine the gain or loss recognized by Carrot on the distribution if the real estate is subject to a liability of $690,000.

(c) Determine the gain or loss recognized by Carrot on the distribution if the real estate is subject to a liability of $885,000.

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Answers (1)

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Serena Frye · Answer 1

a) Loss or gain = fair market value - adjusted value = 880,000 - 650,000 = 230,000

b) Loss or gain = 880,000 - 690,000 = 190,000

c) Loss or gain = 885,000 - 650,000 = 235,000