Rex and Felix are the sole shareholders of the Dogs and Cats Corporation (DCC). After several years of operations, they chose to liquidate the corporation and operate the business as a partnership. Rex and Felix hired a lawyer to draw up the legal papers to dissolve the corporation, but they need some tax  advice from you, their trusted accountant. DCC€™s tax accounting balance sheet at the date of liquidation is as follows:

a. Compute the gain or loss recognized by DCC, Rex, and Felix on a complete liquidation of the corporation, assuming each shareholder receives a pro rata distribution of the corporation€™s assets and assumes a pro rata amount of the liabilities.
b. Compute the gain or loss recognized by DCC, Rex, and Felix on a complete liquidation of the corporation, assuming Felix receives $25,000 in cash and Rex receives the remainder of the assets and assumes all of the liabilities. Assume Felix received the accounts receivable and equipment and assumed the accounts payable.
c. Will Felix recognize any income when he collects the accounts receivable?
d. Will Felix be able to take a deduction when he pays the accounts payable? Assume Rex is a corporate shareholder of DCC.

e. Compute the gain or loss recognized by DCC, Rex, and Felix on a complete liquidation of the corporation, assuming each shareholder receives a pro rata
distribution of the corporation€™s assets and assumes a pro rata amount of the liabilities.
f. Compute the gain or loss recognized by DCC, Rex, and Felix on a complete liquidation of the corporation,assuming Felix receives all cash and Rex receives the remainder of the assets and assumes all of the liabilities. Assume the equipment was contributed by Rex to DCC in a §351 transaction two months prior to the liquidation. At the time of the contribution, the property€™s fair market value was $25,000.

g. Would the tax result change if the property was contributed one year ago? Two years ago? Three years ago?

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FMV Tax Basis Assets $ 30,000 $ 30,000 Cash Accounts receivable Inventory Equipment 10,000 10,000 10,000 20,000 20,000 30,000 15,000 Building 30,000 Land 40,000 5,000 $150,000 $100,000 Total assets Liabilities $ 5,000 Accounts payable Mortgage payable-Building Mortgage payable--Land 10,000 10,000 $ 25,000 Total liabilities Shareholders' Equlty Common stock-Rex (80%) Common stock-Felix (20%) $ 60,000 $100,000 25,000 20,000 $ 80,000 Total shareholders' equity $125,000