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Steven, M.Acc.
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Pink Corporation acquired land and securities in a 351 tax-free

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Pink Corporation acquired land and securities in a § 351 tax-free exchange in 2007. On the date of the transfer, the land had a basis of $1.7 million and a fair market value of $1.9 million, and the securities had a basis of $50,000 and a fair market value of $300,000. Pink Corporation has two shareholders, Maria and Paul, who are unrelated. Maria owns 70% of the stock in the corporation, and Paul owns 30%. Pink adopts a plan of liquidation in 2008. On this date, the value of the land has decreased to $700,000. What is the effect of each of the following on Pink Corporation? Which option should be selected? Please explain your answers.

Distribute all the land to Maria.
Distribute all the land to Paul.
Distribute 70% of the land to Maria and 30% to Paul.
Distribute 50% of the land to Maria and 50% to Paul.
Sell the land and distribute the proceeds of $700,000 proportionately to Maria and to Paul.
Submitted: 4 years ago.
Category: Homework
Expert:  Steven, M.Acc. replied 4 years ago.
(a) If Pink distributes all the land to Maria, none of the $1 million loss realized [$700,000 (fair market value) – $1,700,000 (basis)] on the distribution will be recognized since Maria is a related party and the land is disqualified property.

(b) If all the land is distributed to Paul, it will have a recognized loss of $1 million. The land was valued at more than its basis on the date of the transfer to Pink; thus, the built-in loss limitation does not apply. Because Paul is an unrelated party, the related-party loss limitation does not apply.

(c) The loss on the distribution to Maria ($700,000), a related party, would be disallowed. The remaining $300,000, Paul's interest, would be allowed. For the reasons noted in option (b) above, the loss limitations do not apply to the distribution to Paul.

(d) The property is disqualified property; thus, the loss on the distribution to Maria ($500,000), a related party, would be disallowed. The remaining $500,000 loss, Paul's interest, would be allowed. For the reasons noted in option (b) above, the loss limitations do not apply to the distribution to Paul.

(e) Because the property does not have a built-in loss on the date of the transfer to the corporation, the built-in loss limitation does not apply. The related-party loss limitation does not apply to a sale of property as well. Upon the sale, Pink would recognize the entire $1 million loss.

Therefore, Pink Corporation should either distribute the land to Paul (b), or sell it and distribute the cash (e).
Steven, M.Acc., Instructor
Category: Homework
Satisfied Customers: 744
Experience: Instructor and accountant. Master's degree in Accounting.
Steven, M.Acc. and 2 other Homework Specialists are ready to help you
Customer: replied 4 years ago.
Can you answer one more same payment I will post right now
Customer: replied 4 years ago.

Steven,

I have 2 more questions are you willing to help? I need by tomorrow.

Let me know

Expert:  Steven, M.Acc. replied 4 years ago.
I'm unable to answer the Cardinal/Wren question. What is the other one?
Customer: replied 4 years ago.
  • LET ME KNOW IF YOU CAN ANSWER TWO BELOW, IF YES I WILL GO AHEAD WITH PAYMENT
  • Falcon Corporation is owned 90% by Canary Corporation. The parent is contemplating a liquidation of Falcon Corporation and the acquisition of its assets. Canary Corporation purchased the Falcon stock from Falcon's two individual shareholders a month ago on January 3, 2008, for $400,000. The financial statements of Falcon Corporation, as of January 3, 2008, reflect the following:

    Basis to Falcon Corporation Fair Market Value
    Assets
    Cash
    $40,000 $40,000
    Inventory
    $80,000 $60,000
    Accounts Receivable
    $160,000 $100,000
    Equipment
    $400,000 $320,000
    Land
    $520,000
    $280,000
    $1,200,000 $800,000
    Liabilities and Shareholders' Equity
    Accounts Payable
    $120,000 $120,000
    Mortgages Payable
    $200,000 $200,000
    Common Stock
    $1,000,000 $480,000
    Retained Earnings
    ($120,000)








    $1,200,000 $800,000


    1. Can Canary Corporation make a § 338 election?
    2. Assuming Canary can make a § 338 election, is such an election feasible?

    (20 points)

  • Lemon Corporation enters into a merger with Lime Corporation. Lemon has assets valued at $900,000 (basis of $980,000) and liabilities of $600,000. Lime transfers its stock for 90% of Lemon's assets and liabilities. Lemon distributes the Lime stock and its remaining asset (value of $90,000, adjusted basis of $80,000) subject to a liability ($60,000) to its shareholder, Lea, in exchange for her Lemon stock. Lea's basis in her Lemon stock is $350,000. Lemon liquidates after collecting all of its stock from Lea.
    1. What is the value of stock transferred from Lime to Lemon?
    2. What is the amount of gain (loss) realized and recognized by Lea from the merger? What is Lea's basis in her Lime stock?
    3. What is the amount of gain (loss) realized and recognized by Lemon and Lime from the merger? What is Lime's basis in Lemon's assets?
  • Expert:  Steven, M.Acc. replied 4 years ago.
    THIS ANSWER IS LOCKED!
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    Steven, M.Acc., Instructor
    Category: Homework
    Satisfied Customers: 744
    Experience: Instructor and accountant. Master's degree in Accounting.
    Steven, M.Acc. and 2 other Homework Specialists are ready to help you
    Customer: replied 4 years ago.
    Did you get payment for this one, I am confused a little and now in the process of closing all the question except the one you didn't answer. Just wanted to make sure you are taken care of.
    Expert:  Steven, M.Acc. replied 4 years ago.
    Yes, I received two payments of $30 under this question. Thanks again!

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    Steven, M.Acc.
    Steven, M.Acc.
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    Instructor and accountant. Master's degree in Accounting.