Washington Corporation is a C corporation whose 500 shares are owned by two shareholders, A and B.
Question:
- Washington Corporation is a C corporation whose 500 shares are owned by two shareholders, A and B. A and B are individuals and unrelated to one another.
Shares Adjusted Basis
A 300 $175,000
B 200 150,000
Washington Corporation has the following assets, and no liabilities. The land and securities have been held for longer than a year.
Adjust Basis FMV
Cash $100,000 $100,000
Inventory 25,000 75,000
Land 115,000 210,000
Securities 110,000 85,000
Goodwill 0 30,000
$350,000 $500,000
Washington Corporation adopts a plan of complete liquidation and sells all its assets (other than the cash) to Montana Corporation for $400,000 cash. It distributes the after-tax proceeds to its shareholders in proportion to their stock holdings.
- What is the nature and amount of gain recognized by Washington Corporation, and what is the resulting corporate level tax?
- What is the amount of cash distributed to A and B in the liquidation, and what is the gain for each shareholder?
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw