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:

Inventory Items

Goods or products that a business holds for the purpose of sale or production, including raw materials, work-in-progress, and finished goods.

Periodic Inventory System

An inventory accounting method where inventory and cost of goods sold are determined at the end of an accounting period based on a physical count.

Ending Inventory

Ending inventory is the total value of all inventory, including raw materials, work-in-progress, and finished goods, that a company has at the end of its fiscal period.

Inventory Method

An inventory method is an accounting approach used to value and manage a company's stock of goods.