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:

Ownership

The state or fact of possessing something, often referring to the holding of assets or property.

Staged Investment

The practice of injecting capital into a business in phases based on milestones or performance to reduce the investor's risk.

Risk Management

The practice of identifying, assessing, and controlling threats to an organization's capital and earnings.

Holding Period

The duration of time an investment is held before it is sold or disposed of, impacting the tax treatment of any profits or losses.