During the Current Year, Ecru Corporation Is Liquidated and Distributes

question 63

Multiple Choice

During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of distribution, the land has a basis of $250,000, a fair market value of $650,000, and is subject to a liability of $500,000. Kena, who takes the land subject to the liability, has a basis of $120,000 in the Ecru stock. With respect to the distribution of the land, which of the following statements is correct?

• A) Kena recognizes a gain of $530,000.
• B) Ecru Corporation recognizes a gain of $250,000.
• C) Kena recognizes a gain of $30,000.
• D) Kena has a basis of $250,000 in the land.
• E) None of the above.

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Definitions:

Negative Effects

Adverse or undesirable outcomes or reactions resulting from an action, condition, or event.

Nervous System

The network of nerve cells and fibers that transmits nerve impulses between parts of the body, coordinating voluntary and involuntary actions.

Behavioral Myopia

Refers to the tendency in behavior analysis to focus narrowly on immediate consequences, ignoring longer-term outcomes and wider impacts.

Wanting-and-liking Theory

A theory in psychology that distinguishes between the desire for a reward (‘wanting’) and the pleasure derived from that reward (‘liking’).