The Stock of Cardinal Corporation Is Held as Follows: 90

question 9

Multiple Choice

The stock of Cardinal Corporation is held as follows: 90% by Blue Jay Corporation (basis of $500,000) and 10% by Samuel (basis of $70,000) . Cardinal Corporation is liquidated on October 20, 2011, pursuant to a plan adopted on January 7, 2011. Pursuant to the liquidation, Cardinal Corporation distributed Asset A (basis of $450,000, fair market value of $720,000) to Blue Jay, and Asset B (basis of $45,000, fair market value of $80,000) to Samuel. No election is made under § 338. With respect to the liquidation of Cardinal:

• A) Cardinal Corporation recognizes a gain of $35,000.
• B) Blue Jay has a basis in Asset A of $720,000.
• C) Samuel recognizes no gain (or loss).
• D) Blue Jay recognizes a gain of $220,000.
• E) None of the above.

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Definitions:

Casualty

A sudden, unexpected, or unusual event that causes damage or loss, often used in reference to natural disasters for tax deduction purposes.

Self-Employment Tax

This is a charge including Social Security and Medicare dues, principally aimed at those working independently.

Form 1040

Form 1040 is the U.S. federal income tax form used by individuals to file their annual income tax returns with the Internal Revenue Service (IRS).

Schedule SE

The tax form used by self-employed individuals to calculate the taxes owed on net earnings from self-employment.