Mary and Jane,unrelated Taxpayers,hold Gray Corporation's Stock Equally

question 47

Essay

Mary and Jane,unrelated taxpayers,hold Gray Corporation's stock equally.One year before the complete liquidation of Gray,Mary transfers land (basis of $200,000,fair market value of $130,000)to Gray Corporation as a contribution to capital.Assume that Mary also contributed other property in the same transaction having a basis of $20,000 and fair market value of $100,000.In liquidation,Gray distributes the land to Jane.At the time of the liquidation,the land is worth $110,000.
a.How much loss may Gray Corporation recognize on the distribution of the land to Jane?
b.Assume that the transfer of land to Gray Corporation was made so that the corporation could subdivide the land and build residential housing. However, a subsequent deterioration of the housing market forced Gray Corporation to abandon its plans. What amount of loss may Gray Corporation recognize on the distribution of the land to Jane?

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Definitions:

Grocery Store

a retail establishment that primarily sells food, both fresh and packaged, along with other household goods.

Periodic Inventory System

An accounting method where inventory is physically counted at specific intervals to determine the cost of goods sold and ending inventory levels.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating how much a company earns from its core business activities before subtracting overheads.

Cost of Goods Available for Sale

The total cost of goods that a company has in its inventory and available for sale, including those purchased or manufactured.