Carly Owns 25% of Base Corporation's Single Class of Stock

question 46

Multiple Choice

Carly owns 25% of Base Corporation's single class of stock and Premier Corporation owns the remaining 75%. Carly's basis in the Base stock is $200,000 and Premier Corporation's basis in the Base stock is $600,000. Carly receives property with a $175,000 adjusted basis and a $250,000 FMV and Premier Corporation receives property with a $600,000 adjusted basis and a $750,000 FMV in complete liquidation of Base Corporation. All of Base's cash is used to pay its liabilities. Which of following statements is correct concerning the tax effects of the liquidation?

• A)Neither Carly nor Premier Corporation will recognize a gain.
• B)Carly will recognize some gain but Premier Corporation will not recognize any gain.
• C)Both Carly and Premier will recognize some gain.
• D)Carly will not recognize any gain but Premier will recognize some gain.

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Definitions:

Producer Surplus

The inequality between the monetary expectations of producers for a good or service and the actual monetary outcome.

Wireless Mouse Market

The segment of the market that deals with the selling and purchasing of cordless mice, a common computer peripheral.

Efficient Market

A market where all relevant information is quickly and correctly reflected in securities prices, ensuring that transactions are made fairly and accurately.

Producer Surplus

The difference between what producers are willing to accept for a good or service and the actual price they receive.