R, an Individual, Purchased All the Stock of T Corporation

question 27

Multiple Choice

R, an individual, purchased all the stock of T Corporation on January 1, 2003 for $20,000.On January 1, 2012, T adopts a plan of liquidation.On January 20, 2012, T sells land with a basis of $60,000 for $45,000.On January 31, 2012, T distributes the $45,000 cash plus its only other asset, FIFO inventory with a basis of $40,000 and a fair market value of $48,000, to R.Which of the following statements is true?

• A)T recognizes a loss of $15,000; R recognizes a gain of $73,000 and takes inventory with a basis of $48,000.
• B)Neither T nor R recognize gain.
• C)T recognizes neither gain nor loss; R recognizes a $73,000 gain and has a basis for the inventory of $48,000.
• D)T recognizes a $15,000 loss on the sale and an $8,000 gain on the distribution; R recognizes a gain of $73,000 and has inventory with a basis of $48,000.
• E)T recognizes a $15,000 loss on the sale and an $8,000 gain on the distribution; R recognizes neither gain nor loss and has inventory with a basis of $40,000.

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Definitions:

Income Distribution

The way in which total income is divided among the members of a society.

Marginal Contribution

The additional amount of revenue or benefit generated by utilizing one more unit of a resource or producing one additional unit of a product.

Complementary Resources

Assets or inputs that enhance the value or performance of another asset or input when used in conjunction, such as gasoline for cars or software for computers.

Price of Capital

The cost associated with acquiring capital, including the interest or dividends paid to access funds or the rental rates paid for physical capital.