After a Plan of Complete Liquidation Has Been Adopted, Condor

question 9

Multiple Choice

After a plan of complete liquidation has been adopted, Condor Corporation sells its only asset, land (basis of $220,000) , to Eduardo (an unrelated party) for $300,000.Under the terms of the sale, Condor Corporation receives cash of $50,000 and Eduardo's notes for the balance of $250,000.The notes are payable over the next five years ($50,000 per year) and carry an appropriate interest rate.Immediately after the sale, Condor Corporation distributes the cash and notes to Maria, the sole shareholder of Condor Corporation.Maria has a basis of $30,000 in the Condor stock.The installment notes have a value equal to their face amount.If Maria wishes to defer as much gain as possible on the transaction, which of the following is correct?

• A)Condor Corporation recognizes no gain or loss on the distribution of the installment notes.
• B)Maria recognizes a gain of $20,000 in the year of liquidation.
• C)Maria recognizes a gain of $45,000 in the year of liquidation.
• D)Maria recognizes a gain of $270,000 in the year of liquidation.
• E)None of the above.

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Definitions:

Agent's Functioning

The actions carried out by an agent on behalf of a principal in the course of their agency relationship.

Fiduciary Duty

A legal obligation of one party to act in the best interest of another when in a position of trust, such as between a trustee and the beneficiaries.

Act On Behalf

To take actions or make decisions as a representative or agent for another person or entity.

Duty To Indemnify

It is an obligation to compensate for loss, damage, or liability incurred by another, often specified within a contract.