Exercise 20-15 (Algorithmic) (LO. 1)

On January 4, 2017, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under 351. The shareholder's basis, the fair market value, and the built-in gain (loss) of each property are:

	Shareholder's Basis	Fair Market Value	Built in Gain or (Loss)
Property 1	$386,000	$463,200	$77,200
Property 2	$656,200	$501,800	($154,400)
Net built-in loss			($77,200)

Martin adopts a plan of liquidation later in the year and distributes Property 2 to a 20% shareholder when the property is worth $424,600.

a. Compute Martin's basis in Property 1 and in Property 2 as of January 4, 2017. Martin's basis is Property 1 is a ___________(Stepped down/stepped-up/carryover) basis of $_____________. Martin's basis in Property 2 is a _______________(Stepped down/stepped-up/carryover basis of $______________.

b. Compute Martin's realized and recognized loss on the liquidating distribution of Property 2. Martin has a realized loss of $____________ and a recognized loss of $_______________