Patrice owns 100% of Alpha Corporation's stock. She purchased her stock ten years? ago, and her current
Question:
Patrice owns 100% of Alpha Corporation's stock. She purchased her stock ten years? ago, and her current basis for the stock is $215,000. On June 10, Patrice decided to liquidate Alpha. Alpha's balance sheet prior to the sale of the? assets, payment of the liquidation expenses, and payment of federal income? taxes, as well as some additional information is as? follows:
Assets | Basis | FMV | ||||||
Cash | $230,000 | $230,000 | ||||||
Marketable securities | 110,000 | 106,000 | ||||||
Equipment | 230,000 | 305,000 | ||||||
Land | 300,000 | 640,000 | ||||||
Total | $870,000 | $1,281,000 | ||||||
Equity | ||||||||
Common stock | $275,000 | $1,281,000 | ||||||
Retained earnings (and E&P) | 595,000 | |||||||
Total | $870,000 | $1,281,000 |
• | The corporation has claimed depreciation of $230,000 on the equipment. |
• | The corporation received the marketable securities as a capital contribution from Patrice three years earlier at a time when their adjusted basis was $110,000 and their FMV was $102,000. |
• | Alpha incurred $21,000 in liquidation expenses in its final tax year. Requirements a. What are the tax consequences of the liquidation to Patrice and Alpha Corporation? Assume a 34?% corporate tax rate. b. How would your answer change if Patrice contributed the marketable securities six years? ago? |
Basic Finance An Introduction to Financial Institutions Investments and Management
ISBN: 978-1111820633
10th edition
Authors: Herbert B. Mayo