Mike and Michelle Decided to Liquidate Their Jointly Owned Corporation,Pennsylvania

question 76

Essay

Mike and Michelle decided to liquidate their jointly owned corporation,Pennsylvania Corporation.After liquidating its remaining inventory and paying off its remaining liabilities,Pennsylvania had the following tax accounting balance sheet.
$\begin{array}{ccc}&&&\text { Appreciation }\\&\text { FMV}&\text { Tax Basis}&\text { (Depreciation)}\\\text { Cash}&\$ 200,000 & \$ 200,000 & \\\text { Building}&200,000 & 100,000 & 100,000 \\\text { Land}&\underline {100,000 }& \underline {150,000 }& \underline {(50,000)}\\\text { Total}&\underline {\$ 500,000}&\underline { \$ 450,000} &\underline {\$ 50,000}\\\end{array}$ Under the terms of the agreement,Mike will receive the $200,000 cash in exchange for his 40 percent interest in Pennsylvania.Mike's tax basis in his Pennsylvania stock is $50,000.Michelle will receive the building and land in exchange for her 60 percent interest in Pennsylvania.Her tax basis in the Pennsylvania stock is $100,000.
What amount of gain or loss does Mike recognize in the complete liquidation? 

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Definitions:

Cash Effect

The impact of a business transaction on the cash and cash equivalents held by the company, reflecting how an event affects its liquidity.

Merchandise Inventory

Goods that a retailer, distributor, or manufacturer aims to sell to generate revenue, recorded as a current asset on the balance sheet.

Cash Paid

Cash Paid refers to the actual outflow of cash from a company to settle obligations, such as paying for expenses, acquisitions, or dividends.

Notes Payable

Written agreements where the borrower promises to pay back a specified sum of money plus interest to the lender at a future date.