Question

Discussion Question 19-8 (LO. 5) Raven Corporation owns three machines that it uses in its business. It no longer needs two of these machines and is considering distributing them to its two shareholders as a property dividend. All three machines have a fair market value of $20,000 each. Their basis is as follows: Machine A, $27,000; Machine B, $20,000; and Machine C, $12,000. The corporation has asked you for advice Complete each of the parts below, first isolating the gain (loss) for each machine and ending (part d) with your recommendation. If there is no gain or loss, enter "O" as the amount. a. If Raven distributes Machine A, the result will be a nondeductible loss of $ b. If Raven distributes Machine B, the result will be no gain ossof $ c. If Raven distributes Machine C, the result will be a taxable gain of 0 d. Therefore, to preserve thesson Machine A, Raven should consider selingMachine A. Raven should consider distributing Machine B because there will be no recognized gain or loss on the distribution. To avoid recognizing the gain on Machine C, Raven should consider neither selling nor distributingMachine C

Answer 1

(a): If Raven distributes Machine A, the result will be a nondeductible loss of $7,000

(20,000 – 27,000)

(b): If Raven distributes Machine B, the result will be no gain or loss of $0

(20,000-20,000)

(c): If Raven distributes Machine C, the result will be a taxable gain of $8,000

(20,000-12,000)

(d): Therefore to preserve the loss on Machine A, Raven should consider selling Machine A. Raven should consider distributing Machine B because there will be no recognized gain or loss on the distribution. To avoid recognizing the gain on Machine C, Raven should consider neither selling nor distributing Machine C.