Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions Incorporated (WFI). After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet: FMV Cash $140,000 Building 28,000 Land 112,000 Total Adjusted Tax Basis $140,000 14,000 56,000 $ 210,000 Appreciation 14,000 56,000 $ 280,000 $70,000 Under the terms of the agreement, Shauna will receive the $140,000 cash in exchange for her 50 percent interest in WFI. Shauna's tax basis in her WFI stock is $35,000. Danielle will receive the building and land in exchange for her 50 percent interest in WFI. Danielle's tax basis in her WFI stock is $70,000. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation. Note: Negative amounts should be indicated by a minus sign. Required: What amount of gain or loss does WFI recognize in the complete liquidation? What amount of gain or loss does Shauna recognize in the complete liquidation? What amount of gain or loss does Danielle recognize in the complete liquidation? What is Danielle's tax basis in the building and land after the complete liquidation?
Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions Incorporated (WFI). After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet: FMV Cash $140,000 Building 28,000 Land 112,000 Total Adjusted Tax Basis $140,000 14,000 56,000 $ 210,000 Appreciation 14,000 56,000 $ 280,000 $70,000 Under the terms of the agreement, Shauna will receive the $140,000 cash in exchange for her 50 percent interest in WFI. Shauna's tax basis in her WFI stock is $35,000. Danielle will receive the building and land in exchange for her 50 percent interest in WFI. Danielle's tax basis in her WFI stock is $70,000. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation. Note: Negative amounts should be indicated by a minus sign. Required: What amount of gain or loss does WFI recognize in the complete liquidation? What amount of gain or loss does Shauna recognize in the complete liquidation? What amount of gain or loss does Danielle recognize in the complete liquidation? What is Danielle's tax basis in the building and land after the complete liquidation?
Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations
Section: Chapter Questions
Problem 4BCRQ
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Sh.22.
Transcribed Image Text:Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions Incorporated (WFI). After
liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance
sheet:
FMV
$ 140,000
Adjusted Tax Basis
$ 140,000
Appreciation
Cash
Building 28,000
14,000
Land 112,000
56,000
Total
$ 280,000
$ 210,000
$70,000
Under the terms of the agreement, Shauna will receive the $140,000 cash in exchange for her 50 percent interest in WFI.
Shauna's tax basis in her WFI stock is $35,000. Danielle will receive the building and land in exchange for her 50 percent
interest in WFI. Danielle's tax basis in her WFI stock is $70,000. Assume for purposes of this problem that the cash
available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a
result of the liquidation.
Note: Negative amounts should be indicated by a minus sign.
Required:
What amount of gain or loss does WFI recognize in the complete liquidation?
What amount of gain or loss does Shauna recognize in the complete liquidation?
What amount of gain or loss does Danielle recognize in the complete liquidation?
What is Danielle's tax basis in the building and land after the complete liquidation?
14,000
56,000
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