Question:

X Co. adopts a plan of complete liquidation and makes the following pro rata distributions to its shareholders (assume all are individuals):

A Cash: $70,000;

B Inventory: FMV-$20,000 Basis-$20,000 Mortgage-$10,000;

C Inventory: FMV-$30,000 Basis-$15,000 Mortgage-$40,000;

D Capital Asset: FMV-$500 Basis-$2,800;

(Assume that X Co. acquired the property distributed to D in a Sec. 351 transfer 6 months before adopting the plan of liquidation when the FMV of the property was $800 and X Co.’s basis was $2,800).

E Capital Asset: FMV-$10,000 Basis-$4,000.

Each shareholder had a $1,000 basis in the X Co. stock.

Question: X Co.’s recognized gain or loss on the distribution to :

A is : a).0 b) $70,000 capital gain. c)$69,000 capital gain. d). None of the above

B is : a).0 b) $10,000 ordinary income. c). $20,000 ordinary income. d). None of the above

C is : a). $25,000 ordinary income. b). $35,000 ordinary income. c).$65,000 ordinary income. d). None of the above

D is : a).0 b). <$2,300> capital loss. c). <$300> capital loss. d). None of the above

E is : a).0 b).$10,000 capital gain. c).$6,000 capital gain d). None of the above.

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