Question

Glenda is the sole shareholder of Condor Corporation. She sold her stock to Melissa on October 31 for $150,000. Glenda's basis in Condor stock was $50,000 at the start of the year. Condor distributed land to Glenda immediately before the sale. Condor's basis in the land was $20,000 (fair market value of $25,000). On December 31, Melissa received a $75,000 cash distribution from Condor. During the year, Condor has $20,000 of current E & P and its accumulated E balance on January I is $10,000. Which of the following statements is true?
a. Glenda recognizes a $110,000 gain on the sale of her stock
b. Glenda recognizes a $100,000 gain on the sale of her stock
c. Melissa receives $5,000 of dividend income.
d. Glenda receives $20,000 of dividend income.
e. None of the above.

Answer 1

Answer:

a. Glenda recognizes a $110,000 gain on the sale of her stock

Explanation:

Based on the information given the statements that is true is GLENDA RECOGNIZES A $110,000 GAIN ON THE SALE OF HER STOCK calculated as:

Recognizes Gain On The Sale Of Stock=[Sales price-(Basis in Condor stock - Basis recovery on distribution)]

Let plug in the formula

Recognizes Gain On The Sale Of Stock=[$150,000-($50,000-$10,000)]

Recognizes Gain On The Sale Of Stock=$150,000-$40,000

Recognizes Gain On The Sale Of Stock=$110,000 gain

Therefore Glenda recognizes a $110,000 gain on the sale of her stock.