During the Current Year, Ecru Corporation Is Liquidated and Distributes

question 63

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 the above.

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Definitions:

Capacity To Enter

The legal ability of a person to enter into a binding contract, typically requiring that the person is of legal age and sound mind.

Contracts Limited

Presumed to be a specific entity, but in general terms, it could relate to agreements that have certain limitations or restrictions imposed on them.

Weakened Intellect

A condition or state where an individual's cognitive abilities are significantly below average, affecting their decision-making capabilities.

Contract Law

The branch of legal studies that deals with the creation, interpretation, and enforcement of agreements between parties.