The Stock of Lavender Corporation Is Held as Follows: 80

question 4

Multiple Choice

The stock of Lavender Corporation is held as follows: 80% by Jade Corporation (basis of $400,000) and 20% by Tiffany (basis of $100,000) . Lavender Corporation is liquidated in December of the current year, pursuant to a plan adopted earlier in the year. Pursuant to the liquidation, Lavender Corporation distributed Asset A (basis of $600,000, fair market value of $900,000) to Jade, and Asset B (basis of $250,000, fair market value of $225,000) to Tiffany. No election is made under § 338. With respect to the liquidation of Lavender:

• A) Lavender recognizes a loss of $25,000 on the distribution of Asset B.
• B) Jade has a basis in Asset A of $900,000.
• C) Tiffany has a basis in Asset B of $225,000.
• D) Jade recognizes a gain of $500,000.
• E) Lavender recognizes a gain of $300,000 on the distribution of Asset A.

---

Definitions:

Interest Rates

The cost of borrowing money or the return on investment for savings, often expressed as a percentage.

Revenue Announcement

Revenue announcement refers to a company publicly disclosing its revenue figures for a specific period, which can impact its stock price and investor perception.

Informationally Efficient

A market characteristic where prices fully reflect all available information, making it impossible to consistently achieve higher returns.

Random Walk

A theory suggesting that stock market prices evolve according to a random path and are therefore unpredictable.