Half Moon Corporation Made a Distribution of $300,000 to Arnold

question 84

Essay

Half Moon Corporation made a distribution of $300,000 to Arnold Swartz in partial liquidation of the company on December 31, 20X3. Arnold owns 100percent of Half Moon Corporation (1,200 shares). The distribution was in exchange for 50percent of Arnold's stock in the company (600 shares). At the time of the distribution, the shares had a fair market value of $500 per share. Arnold's income tax basis in the shares was $250 per share. Half Moon had total E&P of $2,000,000 at the time of the distribution. What is the amount and character (capital gain or dividend)of any income or gain recognized by Arnold as a result of the partial liquidation?

---

Definitions:

Variable Costs

Expenses that change in proportion to the activity or volume of production in a business, such as materials and labor.

Breakeven Analysis

Breakeven Analysis is a financial calculation to determine the point at which revenues equal costs, indicating no profit or loss.

Labor

Includes anyone who works, including both the physical labor and the intellectual inputs contributed by workers.

Discount Pricing

A pricing strategy where products or services are offered at a reduced price to stimulate demand or reward customers.