Maura owns 100% of Delta Corporation's common stock. Delta is an accrual basis, calendar year corporation....

 

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Maura owns 100% of Delta Corporation's common stock. Delta is an accrual basis, calendar year corporation. Maura formed the corporation Six years ago by transferring $175,000 of cash in exchange for the Delta stock. Thus, she has held the stock for six years and has a $175,000 adjusted basis in the stock. Delta's balance sheet at January 1 of the current year is as follows: In addition, Delta has claimed $80,000 of MACRS depreciation on the machinery and $120,000 of straight-line depreciation on the building. On January 2 of the current year, Delta liquidates and distributes all property to Maura except that Delta retains cash to pay the accounts payable and any tax liability resulting from Delta's liquidation. Assume that Delta has no other taxable income or loss. |(Click the icon to view the balance sheet.) Requirement Determine the tax consequences to Delta and Maura. Assume a 21% corporate tax rate. Delta has held the marketable securities for two years. Let's begin by determining the tax consequences for Delta. Select the property needed to compute Delta's total gain or loss, compute the gain or loss for each asset and determine the character for each gain or loss. Then, compute Delta's total gain or loss and compute Delta's tax liability. Data Table Assets Basis FMV Cash $ 500,000 $ 500,000 Marketable securities 90,000 115,000 Inventory 320,000 395,000 Equipment 240,000 345,000 510,000 800,000 Building $ 1,660,000 $ 2,155,000 Total Liabilities and Equity Accounts payable $ 190,000 190,000 Common stock 175,000 1,965,000 Choose from any list Retained earnings (and E&P) 1,295,000 $ 1,660,000 $ 2,155,000 Total Help Me Solve Check Answer Maura owns 100% of Delta Corporation's common stock. Delta is an accrual basis, calendar year corporation. Maura formed the corporation Six years ago by transferring $175,000 of cash in exchange for the Delta stock. Thus, she has held the stock for six years and has a $175,000 adjusted basis in the stock. Delta's balance sheet at January 1 of the current year is as follows: In addition, Delta has claimed $80,000 of MACRS depreciation on the machinery and $120,000 of straight-line depreciation on the building. On January 2 of the current year, Delta liquidates and distributes all property to Maura except that Delta retains cash to pay the accounts payable and any tax liability resulting from Delta's liquidation. Assume that Delta has no other taxable income or loss. |(Click the icon to view the balance sheet.) Requirement Determine the tax consequences to Delta and Maura. Assume a 21% corporate tax rate. Delta has held the marketable securities for two years. Let's begin by determining the tax consequences for Delta. Select the property needed to compute Delta's total gain or loss, compute the gain or loss for each asset and determine the character for each gain or loss. Then, compute Delta's total gain or loss and compute Delta's tax liability. Data Table Assets Basis FMV Cash $ 500,000 $ 500,000 Marketable securities 90,000 115,000 Inventory 320,000 395,000 Equipment 240,000 345,000 510,000 800,000 Building $ 1,660,000 $ 2,155,000 Total Liabilities and Equity Accounts payable $ 190,000 190,000 Common stock 175,000 1,965,000 Choose from any list Retained earnings (and E&P) 1,295,000 $ 1,660,000 $ 2,155,000 Total Help Me Solve Check Answer

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Tax consequences of Delta Retained Earni... View the full answer