Question

Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions Inc. (WFI). After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet: FMV Adjusted Basis Appreciation Cash $ 225,000 $ 225,000 Building 45,000 22,500 22,500 Land 180,000 90,000 90,000 Total $ 450,000 $ 337,500 $ 112,500 Under the terms of the agreement, Shauna will receive the $225,000 cash in exchange for her 50 percent interest in WFI. Shauna's tax basis in her WFI stock is $56,250. Danielle will receive the building and land in exchange for her 50 percent interest in WFI. Danielle's tax basis in her WFI stock is $112,500. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation. (Negative amounts should be indicated by a minus sign.) a. What amount of gain or loss does WFI recognize in the complete liquidation

Answer 1

Answer:

A. Building $22,500

Land $90,000

B. Recognizes gain of $180,000

C. Recognizes gain of $112,500

D. Building $45,000

Land $180,000

Explanation:

A. Based on the information given since WFI has a taxable transaction which means that WFI will recognizes gain of the amount of 22,500 on the transfer of the building and gain of the amount of 90,000 on the transfer of the land

b. Calculation for What amount of gain or loss does Shauna recognize in the complete liquidation

Based on the information given Shauna

will recognizess gain of $180,000 on the transfer of her stock to WFI ($ 225,000 - $45,000) in complete liquidation of WFI.

c. Calculation of the amount of gain or loss that Danielle recognize in the complete liquidation

Based on the information given Danielle will recognizes gain of the amount of $112,500 on the transfer of her stock to WFI ($ 225,000 - $112,500) in complete liquidation of WFI.

d. Based on the information given Danielle’s tax basis in the building will be $ 45,000 and land will be $180,000 after the complete liquidation