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

question 38

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 $400,000, fair market value of $350,000) and securities (basis of $20,000, fair market value of $80,000) , while Ellie transferred equipment (basis of $220,000, fair market value of $430,000) .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 undeveloped land that had decreased in value to $290,000 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)$50,000.
• C)$60,000.
• D)$110,000.
• E)None of the above.

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Definitions:

Book Of Vouchers

A ledger or book that contains vouchers, which are documents or files acting as evidence for transactions.

Gross Method

A method of recording purchases of inventory at their gross price without any deduction for trade discounts at the time of purchase.

Periodic Inventory Method

An accounting approach where inventory values and cost of goods sold are determined at the end of an accounting period through physical inventory counts.

Purchases Discount

A reduction in the invoice price of goods, granted by the seller to the buyer for early payment within a specified time frame.