Question

Calamity Corp. distributes five unimproved parcels of swampland to its shareholders as part of a complete liquidation. The fair market value of each parcel is $25,000 and Calamity’s adjusted basis in each parcel is $40,000. What amount of gain or loss will Calamity Corp. recognize as a result of distributing the parcels?

Answer 1

-$75,000

Step-by-step explanation:

We simply substract the adjusted basis value from the market value

Adjusted value = $40,000 x 5

= $200,000

Fair Maket Value = $25,000 x 5

= $125,000

Calamity Corp. gain/loss = $125,000 - $200,000

= -$75,000

Therefore, Calamity Corp will recognize a loss of $75,000 as a result of distributing the parcels.