During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of the 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 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

Question

Business

Royce Chang

15 September, 11:17

During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of the 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 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

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Answers (1)

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Carlee Gregory · Answer 1

c. Kena recognizes a gain of $30,000

Explanation:

cash 650,000 debit

land 250,000 credit

gain at disposal 350,000 credit

liabilities 500,000 debit

cash 500,000 credit

Then, the company will close all account and leave kena account with a capital of 150,000 to mathc the remaining 150,000 cash

as her basis is 120,000 there will be a gain for 30,000