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:

Cis/trans Designation

A way to distinguish isomers by the relative positioning of functional groups within a molecule; cis means on the same side and trans means on opposite sides.

Compound

A substance formed by the chemical combination of two or more elements in a fixed ratio.

Major Constituent

The component present in the greatest amount in a mixture or compound.

Natural Gas

A fossil fuel consisting mainly of methane, used as an energy source for heating, cooking, and electricity generation.