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White raven [17]

4 years ago

6

Pursuant to a complete liquidation in the current year, Scarlet Corporation distributes to Jake land (basis of $425,000, fair ma

rket value of $390,000) that was purchased three years ago and held as an investment. The land is subject to a liability of $250,000. Jake, who owned 35% of the Scarlet Corporation shares outstanding, had a basis of $60,000 in the stock. What are the tax consequences of the liquidating distribution to Scarlet Corporation and to Jake?

1 answer:

zubka84 [21]4 years ago

8 0

Answer:

<em>The Long-term capital gain (Jake recognize) = $80,000 </em>

<em> However, the Jake considered the basis of $390,000 (Land).</em>

Explanation:

<em>From the questions given we find the following,</em>

<em>What are the consequences of tax for the distribution liquidating to Jake and Scarlet Corporation </em>

<em>Then,</em>

<em>The Long-term capital loss (Scarlet Corporation recognize) = Fair market value - Basis </em>

<em> The Long-term capital loss (Scarlet Corporation recognize) = $390,000 - $425,000 </em>

<em> The Long-term capital loss (Scarlet Corporation recognize) = $35,000 </em>

<em> The Long-term capital gain (Jake recognize) = (Fair market value of land - Liability) - Basis of stock </em>

<em> The Long-term capital gain (Jake recognize) = ($390,000 - $250,000) - $60,000 </em>

<em> The Long-term capital gain (Jake recognize) = $80,000 </em>

<em> However, the Jake considered the basis of $390,000 (Land).</em>

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Answer:

<u>Future Price</u>

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F3: 113.13

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Explanation:

<em>forward price:</em>

$F = S (1+r)^{n}$

being S the spot rate

time 9 months and

rate 2% <u>continuous componding</u>

As the rate is continuous we calculate using the e number instead:

$F = S e^{rn} +cost$

$F = 125 e^{0.02 \times 9/12}$

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<u>4th month</u>

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at fourth month

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