Question

Olinto Corp., an accrual-basis calendar-year C corporation, had no corporate shareholders when it liquidated in year 12. In cancellation of all their Olinto Corp. stock, each Olinto Corp. shareholder received in year 12 a liquidating distribution of $12,000 cash and land with a corporate tax basis of $15,000 and a fair market value of $20,500. Before the distribution, each shareholder's tax basis in Olinto Corp. stock was $16,500. What amount of gain should each Olinto Corp. shareholder recognize on the liquidating distribution?

Answer 1

Answer:

The correct answer is $16,000.

Explanation:

According to the scenario, the given data are as follows:

Cash received = $12,000

Fair market value of the property = $20,500

Tax basis of stock = $16,500

So, we can calculate the amount of gain by using the following formula:

Amount of gain =  Cash received + Fair market value of the property - Tax basis of stock

By putting the value in the formula, we get:

Amount of gain = $12,000 + $20,500 - $16,500

= $16,000.