Question

Cartman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Cartman decided to liquidate SP Corporations by distributing the assets to Cartman and Kenny. SP reported the following balance sheet at the date of liquidation:

$100,000

a) Compute the gain or loss recognized by SP, Cartman, and Kenny on a complete liquidation of the corporation, where SP distributes $10,000 of cash to Kenny and the remaining assets to Cartman.

b) Compute the gain or loss recognized by SP and Kenny on a complete liquidation of the corporation, where SP distributes the stock investment to Kenny and the remaining assets to Cartman. Assume SP's tax rate is zero.

c) What form needs to be filed with the liquidation of SP?

 

Adjusted Basis

FMV

Cash

$12,000

$12,000

Accounts Receivable

8,000

8,000

Stock Investment

2,000

10,000

Land

40,000

70,000

Total Assets

$62,000

$100,000

Common Stock – Cartman (90%)

$10,000

$90,000

Common Stock – Kenny (10%)

7,000

10,000

Total Shareholder Equity

$17,000

$100,000

 

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