Z Corp Elected S Corporation Status When It Was Formed

question 31

Multiple Choice

Z Corp elected S corporation status when it was formed.It purchased land for $15,000 and constructed a warehouse to store inventory for its business.During the past taxable year, Z distributed the warehouse and land, valued at $200,000, to its shareholders.The original cost to construct the building was $120,000, and straight-line depreciation of $100,000 has accumulated.The values are allocated as follows: $$\begin{array}{l}&\text { Fair Market Value }&\text { Adjusted Basis }&\text { Appreciation }\\\text { Land } & \$ 60,000 & \$ 15,000 & \$ 45,000 \\\text { Building } & 140,000 & 20,000 & 120,000 \\\text { Total } & \$ 200,000 & \$ 35,000 & \$ 165,000\end{array}$$ Assuming sufficient AAA, what is the effect on the shareholders' bases for this distribution?

• A)$35,000 increase
• B)$165,000 increase
• C)$35,000 decrease
• D)$200,000 decrease

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