Chapter 6 Tax Exam Review

Riverwalk Corporation is liquidated, with Juan receiving $5,000 in money and other property having a $6,000 FMV, Juan's basis in his Riverwalk stock is $8,000. Upon liquidation, Juan must recognize a gain of

$3,000

1. Market Corporation owns​ 100% of Subsidiary​ Corporation's stock. Market Corporation completely liquidates Subsidiary​ Corporation, receiving land with a​ $400,000 adjusted basis and a​ $500,000 FMV in exchange for Subsidiary​ stock, which has a​ $300,000 adjusted basis. Market Corporation has a basis in the land of

$400,000

Robot Corporation is​ liquidated, with Marty receiving property having an adjusted basis of​ $60,000 and an FMV of​ $90,000. The property is subject to an​ $80,000 mortgage, which Marty assumes.​ Marty's basis in the Robot stock surrendered is​ $50,000. Marty must recognize

40,000 Loss

1. Under a plan of complete​ liquidation, Key Corporation distributes land​ (not a disqualified​ property) with an adjusted basis of​ $410,000 and an FMV of​ $300,000 for all​ Sharon's stock.​ Sharon's basis in her​ 5% interest in the Key stock is​ $250,000. Find​ Sharon's basis in the land and Key​ Corporation's recognized gain or loss.

Basis Recognized​ Gain/Loss ​$300,000 ​$110,000 loss

1. Barbara owns 100 shares of Bond Corporation stock with a basis of​ $40,000. Barbara receives two liquidating​ distributions, including​ $16,000 paid last year and​ $20,000 paid in the current year. An additional distribution of an undetermined amount is expected next year. On last​ year's tax​ return, Barbara can recognize a loss of

$0

1. Under a plan of complete​ liquidation, Coast Corporation distributes land with a​ $300,000 adjusted basis and a​ $400,000 FMV to​ William, a​ 25% shareholder. William has a​ $200,000 basis in his Coast stock. The land is inventory in the hands of Coast Corporation. Coast Corporation must recognize

$100,000 of ordinary income

Riverwalk Corporation is liquidated, with Juan receiving $5,000 in money, other property having a $6,000 FMV, and a $1,000 mortgage on the property. Juan's basis in his Riverwalk stock is $8,000. Upon liquidating, Juan must recognize a gain of

$2,000

1. Texas Corporation is undergoing a complete liquidation and distributes land to​ Robert, one of its​ shareholders, in exchange for all of​ Robert's stock. The land has a basis of​ $300,000 and an FMV of​ $400,000 on Texas​ Corporation's books and is subject to a​ $325,000 liability. Robert assumes the liability on the property.​ Robert's basis in his Texas Corporation stock is​ $100,000. What is the amount of gain or loss recognized by Robert on the​ distribution?

$25,000 Loss

A plan of liquidation

Details the steps to be undertaken in carrying out the liquidation

1. Cowboy Corporation owns​ 90% of the single class of stock in Doggie Corporation. The other​ 10% is owned by​ Miguel, an individual.​ Cowboy's basis in its Doggie Corporation stock is​ $100,000 and​ Miguel's basis is​ $50,000. Doggie Corporation distributes property having an adjusted basis of​ $150,000 and an FMV of​ $500,000 to Cowboy​ Corporation, and​ $60,000 of money to Miguel as a liquidating distribution. Doggie and Cowboy Corporations must recognize gain​ of:

Doggie Cowboy ​$0 ​$0

1. Dusty Corporation owns​ 90% of Palace​ Corporation's stock and Susan owns the remaining stock. Dusty​ Corporation's stock basis is​ $300,000 and​ Susan's stock basis is​ $20,000. Under a plan of complete​ liquidation, Dusty Corporation receives property with a​ $400,000 adjusted basis and a​ $540,000 FMV and Susan receives property with a​ $20,000 adjusted basis and a​ $60,000 FMV. The bases of the properties​ are:

Dusty Susan ​$400,000 ​$60,000

Generally, a corporation recognizes a gain, but not a loss, on a liquidating distribution

False

Liquidation and dissolution have the same legal meaning

False

1. Sandy, a cash method of accounting​ taxpayer, has a basis of​ $46,000 in her 500 shares of Newt Corporation stock. She receives the following distributions as part of​ Newt's plan of liquidation. March​ 31, 2017 ​$10,000 July​ 15, 2017 ​10,000 November​ 15, 2017 ​10,000 January​ 15, 2018 ​10,000 The amount of the final distribution is not known on December​ 31, 2017. What are the tax consequences of the​ distributions

Sandy will recognize the entire loss in 2018

The general rule for tax attributes of liquidating corporations is

They disappear when the liquidation is complete

A corporation is required to file form 966 within 30 days after the adoption of a plan of liquidation

True

In a complete liquidation, a liability assumed by a shareholder reduces the shareholders amount realized

True

In general, a noncorporate shareholder that receives a distribution in a complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capita gain

True

Liquidating expenses are generally deducted as ordinary and necessary business expenses

True

The adjusted basis of property received in a complete liquidation is its fair market value on the distribution date

True

Property received in a corporate liquidation by a noncorporate shareholder has

a basis equal to its FMV. Its holding period commences on the day after the distribution data

When a subsidiary corporation is liquidated into its parent corporation under a formal plan of liquidation, the distributions must take place within

The current and next three tax years

1. Moya Corporation adopted a plan of liquidation last year. All but a nominal amount of​ Moya's assets are distributed to its shareholders within the year. Which of the following statements is not​ true?

The liquidation of Moya Corporation means the corporation has undergone dissolution

In a complete liquidation of a corporation, which of the following is false?

The liquidation of a corporation means it has undergone dissolution

When a corporation liquidates, it performs three activities. What is the general order of these activities in a plan of liquidation

Wind up its affairs, pay debts, and distribute property to shareholders