After a Complete Liquidation Has Been Adopted,Wren Corporation Sells Its

question 32

Essay

After a complete liquidation has been adopted,Wren Corporation sells its only asset,unimproved land (basis of $200,000)held as an investment.The land is sold to Seth (an unrelated party)for $500,000.Under the terms of the sale,Wren Corporation receives cash of $100,000 and Seth's notes for the balance of $400,000.The notes are payable over the succeeding 5 years ($80,000 per year)and carry an appropriate rate of interest.Immediately after the sale,Wren Corporation distributes the cash and notes to Adam,the sole shareholder of Wren.Adam has an adjusted basis of $150,000 in the Wren stock.The installment notes have a value equal to their face amount of $400,000.
a.How will Wren Corporation be taxed on the distribution?
b.How will Adam be taxed on his receipt of the cash and notes?

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Definitions:

Eyepiece

The lens or group of lenses at the viewing end of a telescope or microscope, through which the observer looks to see the magnified image.

Magnification

The process of enlarging the appearance of an object, typically using lenses or microscopes.

Parfocal Microscope

A microscope designed such that once an object is in focus at one magnification, it remains in focus when the magnification is changed.

Objective Lens

The part of a microscope closest to the object being observed, which focuses light or electrons to create an enlarged image.