Question

Ball Corporation owns 80% of Net Corporation’s stock and Jack owns the remaining 20% of Net Corporation’s stock. Ball’s basis in the Net stock is $200,000 and Jack’s basis in the Net stock is $100,000. Under a plan of complete liquidation, Ball Corporation receives property with an adjusted basis of $400,000 and a FMV of $800,000 and Jack receives property with an adjusted basis of $50,000 and a FMV of $200,000. Ball and Jack’s recognized gains on the liquidation are:
Ball Jack

A) $0 $0

B) $0 $100,000

C) $200,000 $50,000

D) $600,000 $100,000

Answer 1

Answer:

B) $0 $100,000

Explanation:

Ball Corporation owns 80% of stock and Jacks own 20%. In case of liquidation the company business is shut down and its existence is ended.  The assets of a company are distributed to its claimants. The process of liquidation is costly and sometimes complicated when there are many claimants for companies few assets available. In this case the Jack has got $250,000 and Ball Corporation has got $ 1,200,000. The Ball Corporation will not recognize any gain on liquidation because it gets less value than its ownership.