Question

Prime Corporation liquidates its ​85% owned subsidiary Bass Corporation under the provisions of Secs. 332 and 337. Bass Corporation distributes land to its minority​ shareholder, John, who owns a​ 15% interest. The property received by John has a​ $55,000 FMV. The land was used in the Bass​ Corporation's business and has a​ $65,000 adjusted basis and is subject to a​ $10,000 liability, which is assumed by John.​ John's basis in his stock is​ $25,000. What gain or loss will John and Bass Corporation recognize on the distribution of the​ land?

Answer 1

Answer:

$20000 gain for John Corporation and $10000 loss for Bass Corporation.

Explanation:

John Corporation gain(loss) = FMV of property - Liability assumed - Stock basis

                                               = 55000-10000-25000

                                               = 20000

Bass Corporation gain/loss = 55000-65000

                                              = - 10000

Therefore,  $20000 gain for John Corporation and $10000 loss for Bass Corporation.