Kango Corporation owns 180 shares of Shanda Corporation. Kafue, an individual shareholder, owns the remaining 20 shares
Question:
Kango Corporation owns 180 shares of Shanda Corporation. Kafue, an individual shareholder, owns the remaining 20 shares of Shanda Corporation. In 2018, Kango Corporation decided to liquidate Shanda Corporation by distributing the assets to Kango Corporation and to Kafue. The tax basis of Kango Corporation is $20,000, and the tax basis of Kafue's shares is $14,000. Shanda Corporation reported the following balance sheet at the date of liquidation:
Adjusted Basis | Fair Market Value | |
Cash | $24,000 | $24,000 |
Accounts Receivable | 16,000 | I6,000 |
Investment in Stocks | 4,000 | 20,000 |
Land | 80,000 | 140,000 |
Total Assets | $124,000 | $200,000 |
Common Stock-Kango (90%) | 180,000 | |
Common Stock- Kafue (10%) | 20,000 | |
Total Stockholder Equity | $200,000 |
Requirements:
- Compute and analyze the type of gain or loss recognized by Shanda, Kango, and Kafue on a total liquidation of the corporation (Shanda Corporation) whereby Shanda distributes $20,000 of cash to Kafue and the remaining assets to Kango Corporation.
- Compute and analyze the type of gain or loss recognized by Shanda, Kango, and Kafue on a total liquidation of the corporation (Shanda Corporation) whereby Shanda Corp. distributes the stocks' investment balance to Kafue and the remaining assets to Kango Corporation. Assume Shanda Corporation's tax rate is zero.
- Determine what tax form or forms need to be filed with the liquidation of Shanda by each party involved in the transaction and explain why.
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker