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:

Budget Constraint

Represents the combinations of goods and services a consumer can purchase given their income and the prices of those goods and services.

Opportunity Set

The entire spectrum of investment opportunities available to an investor, from which they can choose according to their risk appetite and return expectations.

Income

The amount of money received over a period of time, usually from work or investments.

Slope

A measure of the steepness or incline of a line, typically expressed as a ratio of vertical change to horizontal change.