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17 August, 02:03

The stock of Loon Corporation is held as follows: 85% by Duck Corporation and 15% by Gerald, an individual. Loon Corporation is liquidated in December of the current year, pursuant to a plan adopted earlier in the year. Loon Corporation distributes land with a basis of $350,000 and fair market value of $390,000 to Gerald in liquidation of his stock interest. Gerald had a basis of $200,000 in his Loon stock. How much gain will Loon Corporation recognize in this liquidating distribution?

a. $0

b. $40,000

c. $190,000

d. $390,000

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Answers (1)
  1. 17 August, 02:09
    0
    b. $40,000

    Explanation:

    Step 1. Given information.

    Loon Corporation distributes land with a basis of $350,000 and fair market value of $390,000 to Gerald in liquidation of his stock interest.

    Step 2. Formulas needed to solve the exercise.

    Gain to be recognized by Loon Corporation = Fair market value of the land - Basis

    Step 3. Calculation.

    Gain to be recognized by Loon Corporation = $390,000 - $350,000 = $40,000

    Step 4. Solution.

    The correct answer is 2nd. i. e $40,000
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