Question

During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of distribution, the land has a basis of $250,000, a fair market value of $650,000, and is subject to a liability of $500,000. Kena, who takes the land subject to the liability, has a basis of $120,000 in the Ecru stock. With respect to the distribution of the land, which of the following statements is correct?

a. Kena recognizes a gain of $530,000.

b. Ecru Corporation recognizes a gain of $250,000.

c. Kena recognizes a gain of $30,000.

d. Kena has a basis of $250,000 in the land.

e. None of the above.

Answer 1

Fair market value of Land less: Value of Liability $ $ $ $ $ 6,50,000 5,00,000 1,50,000 1,20,000 30,000 less: Kena share's value Gain to Kena Thus, Option c.Kena recognizes a gain of $30,000

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