Question

Osprey Corporation stock is owned by Pedro and P让tro, who are unrelated. Pedro and Pittro each own 50% of the stock in the corporation. Osprey has the following assets (none of which were acquired in a § 351 or contribution to capital transaction) that are distributed in complete liquidation of the corporation. Cash Land Equipment Adjusted Basis $300,000 200,000 250,000 Fair Market Value $300,000 440,000 140,000 Asst1me that Osprey Corporation distributes the land to Pedro and the cash and equipment to Pittro. a. Determine Osprey's recognized gain or loss on the distribution of land. b. Determine Osprey’s recognized gain or loss on the distribution of the equipment

Answer 1

Answer:

A. Therefore a gain of $240,000 is recognized on the distribution of land

B. Therefore a loss of $110,000 is recognized on the distribution of equipment.

Explanation:

A. The liquidation corporation must recognize gain or loss based on the difference between fair market value and adjusted basis.

Hence Gain/(Loss) recognized by Osprey on distribution of land is:

Gain/ (Loss) = $440,000-$200,000 = $240,000

Therefore a gain of $240,000 is recognized.

B. Similarly the Gain/(Loss) recognized by Osprey on distribution of Equipment is:

Gain/(Loss) = $140,000-$250,000=($110,000)

Therefore a loss of $110,000 is recognized.

Answer 2

Answer:

A. Gain $240,000

B. Loss $110,000

Explanation:

ADJUSTED BASIS can be defined a s the cost of asset or original cost after reducing depreciation or adjusting the items that relate to tax which will therefore shows the amount realized from a sales or deposition of property.

FAIR MARKET VALUE can be defined as the actual amount or price a buyer is willing to buy from the seller without forcing any of the both parties to do so or without been force to buy and sell and both parties must be aware of the asset condition involved.

Osprey Corporation stock

A. Distribution of land

Adjusted basis - Fair market value

$200,000-440,000

=$240,000

Osprey recognized gain of $240,000 on the distribution of land.

B. Distribution of Equipment

Adjusted basis-Fair value market

$250,000-$140,000

$110,000

Osprey recognized loss of $110,000,on the distribution of Equipment.