During the Current Year, Ecru Corporation Is Liquidated and Distributes

question 67

Multiple Choice

During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of distribution, the land has a basis of $250,000, a fair market value of $650,000, and is subject to a liability of $500,000. Kena, who takes the land subject to the liability, has a basis of $120,000 in the Ecru stock. With respect to the distribution of the land, which of the following statements is correct?

• A) Kena recognizes a gain of $530,000.
• B) Ecru Corporation recognizes a gain of $250,000.
• C) Kena recognizes a gain of $30,000.
• D) Kena has a basis of $250,000 in the land.
• E) None of these.

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Definitions:

Customs

The official department that oversees the importation and exportation of goods in and out of a country, implementing national regulations and duties.

Practices

refers to habitual actions or procedures followed by individuals or organizations in a particular field or profession.

Good Faith

Acting with honesty, fairness, and sincerity in transactions and legal matters without intent to defraud or seek unfair advantage.

Honesty in Fact

A standard of conduct that denotes a sincere, honest intention or belief, without any intent to deceive.