Kristine owns all of the stock of a C corporation which owns the following assets. $\begin{array}{lrr}&\text { Adjusted Basis Fair }&\text { Market Value }\
\text { Accounts receivable } & \$-0- & \$ 60,000 \
\text { Inventory } & 20,000 & 30,000 \
\text { Machinery and equipment* } & 50,000 & 90,000 \
\text { Buil dings** } & 120,000 & 170,000 \
\text { Land } & 80,000 & 140,000 \
& \$ 270,000 & \$ 490,000
\end{array}$ * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used.
Her adjusted basis for her stock is $270,000.Calculate Kristine's recognized gain or loss and classify it as capital or ordinary if she sells her stock for $500,000.
A)$230,000 ordinary income.
B)$230,000 capital gain.
C)$115,000 ordinary income and $115,000 capital gain.
D)?$110,000 ordinary income and $120,000 capital gain.

Question

Quizplus · Accepted Answer

$230,000 capital gain.When Kristine sells her stock for $500,000, her recognized gain is calculated by subtracting her adjusted basis in the stock ($270,000) from the sale price ($500,000), resulting in a $230,000 gain. Since the transaction involves the sale of stock, the gain is classified as a capital gain, not ordinary income. The nature of the corporation's assets and potential recapture amounts do not directly affect the characterization of the gain from the sale of the stock itself.

Kristine Owns All of the Stock of a C Corporation