Question

Pursuant to a complete liquidation, Carrot Corporation distributes to its shareholders real estate held as an investment (basis of $650,000, fair market value of $880,000).

a. Determine the gain or loss recognized by Carrot on the distribution if no liability is involved.

Answer 1

The correct answer is $230,000 gain.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Fair value = $880,000

Basis = $650,000

So, we can calculate the gain or loss on the distribution by using following formula:

Gain or Loss = Fair value - Basis

By putting the value, we get

Gain or Loss = $880,000 - $650,000

= $230,000 ( Positive shows gain)

So, Gain = $230,000.