A Corporation Distributes Land and the Related Liability to Meg

question 20

Multiple Choice

A corporation distributes land and the related liability to Meg, its sole shareholder. The land has an FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation's adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?

• A)A recognized loss of $10,000; its E&P is reduced by $70,000.
• B)A recognized loss of $10,000; its E&P is unchanged.
• C)No recognized gain or loss; its E&P is reduced by $60,000.
• D)No recognized gain or loss; its E&P is unchanged by the distribution.

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Definitions:

Conglomerate

A coarse-grained clastic sedimentary rock composed of rounded to sub-rounded clasts (pebbles, cobbles, and boulders) in a fine-grained matrix of sand and mud.

Breccia

A rock composed of large, angular fragments; typically formed in sedimentary environments, but can be formed by volcanic, hydrothermal, or tectonic processes.

Sandstone

A sedimentary rock formed by the consolidation and compaction of sand and held together by a natural cement, such as silica.

Cement

1. A natural material precipitated in the pore spaces between grains, helping to hold the grains together. 2. A processed, whitish powder, typically derived from calcium carbonate, that sets to a solid mass when mixed with water and usually other materials.