The stock of Mulberry Corporation is owned by Archana (60%) and Anar (40%), who are mother and daughter. Pursuant to a plan of complete liquidation adopted earlier in the current year, Mulberry distributes land worth $1,364,000 to Anar (basis of $218,240 in Mulberry stock). The land was purchased by Mulberry Corporation three years ago for $1,773,200, and it is distributed subject to a liability of $1,091,200.

What amount of gain or loss is recognized by Mulberry Corporation and by Anar with respect to the distribution of the land?

Question

Business

Sydney Sutton

20 September, 19:20

The stock of Mulberry Corporation is owned by Archana (60%) and Anar (40%), who are mother and daughter. Pursuant to a plan of complete liquidation adopted earlier in the current year, Mulberry distributes land worth $1,364,000 to Anar (basis of $218,240 in Mulberry stock). The land was purchased by Mulberry Corporation three years ago for $1,773,200, and it is distributed subject to a liability of $1,091,200.

What amount of gain or loss is recognized by Mulberry Corporation and by Anar with respect to the distribution of the land?

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Answers (1)

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Isaac Travis · Answer 1

We have a loss of $109,120

Explanation:

Based on the scenario

Our variables are as follows,

market value = $1,773,200

Purchased value = $1,364,000

To calculate the loss been recognized is seen below

Loss recognized = Market value - Purchase value

Which we have has

=$1,773,200-1,364,000

=$409,200

The loss been recognized by Mulbery Corporation is $409,200

Also, let's determine the loss or gain of Anar corporation

Purchased value = $1,364,000

Liability = $1,091,200

actual basis of Mulberr stock = $218,240

We can calculate it using these method

Loss by Anar = Purchase value - Liability - Actual basis of Mulberry stock

Substituting the values, we have

=[ (1364000 - 1091200) * 40%]-$218240

=$109120-$218240

=$109,120

We have a loss of $109,120