Last Year, Darby Contributed Land (Basis of $60,000, Fair Market

question 52

Multiple Choice

Last year, Darby contributed land (basis of $60,000, fair market value of $80,000) to the Seagull LLC in exchange for a 25% interest in the LLC. In the current year, the LLC distributes the land (now worth $82,000) to Shelby, who is also a 25% owner. Immediately prior to the distribution, Darby's basis in the LLC was $70,000, while Shelby's basis in the LLC was $110,000. How much gain or loss must be recognized and by whom? What is Shelby's basis in the property she receives and Darby's basis in her partnership interest following the distribution?

• A)No gain or loss; Shelby's basis in the property is $80,000; Darby's basis in interest is $70,000.
• B)$20,000 gain recognized by Darby; Shelby's basis in the property is $80,000; Darby's basis in interest is $90,000.
• C)$22,000 gain recognized by Darby; Shelby's basis in the property is $82,000; Darby's basis in interest is $92,000.
• D)$20,000 gain recognized by Shelby; Shelby's basis in the property is $80,000; Darby's basis in interest is $90,000.
• E)$22,000 gain recognized by Shelby; Shelby's basis in the property is $82,000; Darby's basis in interest is $92,000.

Assess the significance of intra-entity transfers in determining filing status for income taxes.

Recognize the variations in tax filing requirements based on the domestic or foreign status of the subsidiary.

Understand the characteristics and implications of dilutive securities on earnings per share calculations.

Comprehend the consolidation adjustments required for intercompany bond transactions and their impacts on financial statements.

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Definitions:

Chi-squared Goodness-of-fit

A statistical test used to determine if a sample data fits a distribution from a certain population, based on the differences between observed and expected frequencies.

Two-tail Test

A statistical test that considers the possibility of observing extreme outcomes in both tails of the distribution.

Nominal Data

Data categorized into discrete groups or categories that cannot be ranked or ordered.

Z-test

A technique in statistics for determining the distinction between the means of two large-sample populations with specified variances.