Purple Corporation Has Two Equal Shareholders, Joshua and Ellie, Who

question 33

Multiple Choice

Purple Corporation has two equal shareholders, Joshua and Ellie, who are father and daughter. One year ago, the two shareholders transferred properties to Purple in a § 351 exchange. Joshua transferred land (basis of $600,000, fair market value of $450,000) and securities (basis of $70,000, fair market value of $250,000) , while Ellie transferred equipment (basis of $420,000, fair market value of $700,000) . In the current year, Purple Corporation adopts a plan of liquidation, sells all of its assets, and distributes the proceeds pro rata to Joshua and Ellie. The only loss realized upon disposition of the properties was with respect to the land that had decreased in value to $310,000 and was sold for this amount. Purple never used the land for any business purpose during the time it was owned by the corporation. What amount of loss can Purple Corporation recognize on the sale of the land?

• A) $0
• B) $140,000
• C) $150,000
• D) $290,000
• E) None of the above

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Definitions:

Monopoly Power

The degree of control a company has over a market, enabling it to set prices or exclude competition.

Production Costs

The total expenses incurred in the manufacturing of a product or the providing of a service, including raw materials, labor, and overheads.

Economies of Scale

Economies of scale are cost advantages that entities achieve due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Elastic Market Demand

Describes how sensitive the overall market demand for a good or service is to price changes.