Subsidiary Corporation is a wholly owned subsidiary of Parent Corporation. The two corporations have the following balance sheets:

Other Facts:
€¢ Parent€™s basis in its Subsidiary stock is $200,000, which corresponds to the $200,000 common stock on Subsidiary€™s balance sheet.
€¢ The $1 million note payable on Subsidiary€™s balance sheet is payable to Parent and corresponds to the note receivable on Parent€™s balance sheet.
€¢ The corporations do not file consolidated tax returns.
€¢ Subsidiary has $600,000 of net operating loss (NOL) carryovers.
€¢ The FMV and adjusted basis of Subsidiary€™s assets are the same amount.
€¢ Just prior to the liquidation, Subsidiary uses $150,000 of its assets to pay off its general liabilities.
€¢ Subsidiary transfers all its assets and liabilities to Parent upon a complete liquidation.
Determine the tax consequences to Parent and Subsidiary upon Subsidiary€™s liquidation.

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Assets Parent Subsidiary 1,500,0007 General assets S 750,000 Investment in Subsidiary stock 200,000 Note receivable from Subsidiary 1000,000 Total S2.700.000 S 750,000 Liabilities & Equity General liabilities S1,500,000 S 150,000 1,000,000 200,000 Note payable to Parent Common Stock 300,000 Retained earnings (deficit) 900.000 600.000) Total $2,700,000 S 750,000