Question

On january 1, year 1, pearl corporation owned 90% of the outstanding stock of seso corporation. both companies were domestic corporations. pursuant to a plan of liquidation adopted by seso in march year 1, seso distributed all of its property in september year 1 in complete redemption of all its stock, when seso's accumulated earnings equaled $18,000. seso had never been insolvent. pursuant to the liquidation, seso transferred to pearl a parcel of land with a basis of $10,000 and a fair market value of $40,000. how much gain must seso recognize in year 1 on the transfer of this land to pearl?

Answer 1

$30,000

Step-by-step explanation:

Data provided in the question:

Accumulated earnings = $18,000

Basis for land = $10,000

Fair market value = $40,000

Now,

Since, seso is under liquidation all the assets will be sold and stocks to be settled.

Thus,

Gain seso must recognize in year 1 on the transfer of this land to pearl

= Fair market value of the land - Basis for land

= $40,000 - $10,000

= $30,000