During 2016, CDE Corporation (An S Corporation Since Its Inception

question 47

Essay

During 2016, CDE Corporation (an S corporation since its inception in 2014) distributed a parcel of land to its sole shareholder Clark. The fair market value of the land at the time of the distribution was $80,000 and CDE's tax basis in the property was $30,000. Before considering the effects of the distribution, Clark's basis in his CDE stock was $10,000. What amount of gain, if any, does CDE recognize on the distribution? What amount of income, if any, does Clark recognize on the distribution and what is Clark's basis in his CDE stock after accounting for the distribution?

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Definitions:

Promissory Note

A financial paper embodying a vow by one individual or entity to transfer a stated sum of money to another, either on demand or on a specified forthcoming date.

Simple Interest

Interest calculated on the principal amount of a loan or investment, without compounding over time.

Yield

The income return on an investment, typically expressed as an annual percentage rate based on the investment’s cost, its current market value, or its face value.

Promissory Note

A financial instrument that contains a written promise by one party to pay another a definite sum of money either on demand or at a specified future date.