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The stock of Mulberry Corporation is owned by Archana (60%) and Anar (40%), who are mother and daughter.

Pursuant to a plan of complete liquidation adopted earlier in the current year, Mulberry distributes land worth $575,000 to Anar (basis of $100,000 in Mulberry stock).

The land was purchased by Mulberry Corporation three years ago for $650,000, and it is distributed subject to a liability of $425,000.

What amount of gain or loss is recognized by Mulberry Corporation and by Anar with respect to the distribution of the land?

Respuesta :

Solution and Explanantion:

Determining the gain or loss recognized by M corporation

Loss to be recognised = Market Value – Purchase Value

[tex]=\$ 575000-\$ 650000[/tex]= $75000

Thus, loss to be recognised by the “M” corporation is $75000

Determining the gain or loss of A:

[tex]Loss by $\mathrm{A}=$ Purchase Value - Liability - Actual basis of $\mathrm{M}$[/tex]

[tex]=[(\$ 575000-\$ 425000) * 40 \%]-\$ 100000[/tex]

[tex]=\$ 60000-\$ 100000[/tex]

= ($40000)

Thus, loss to be recognised by A is $40000

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