K purchased all 100 shares of N Corporation in 2005 for $50,000.N Corporation adopts a plan of liquidation on January 1, 2012.On May 1, 2012, N sells its only asset, land, for $10,000 cash and an installment note with a face amount and fair market value of $90,000.On December 1, 2012, N distributes the cash and note to K.In 2013, K receives $9,000 from the installment note.How much gain must K report in 2013?

Question

Quizplus · Accepted Answer

The first step in calculating the gain is to determine the amount realized. In this case, the amount realized is the $10,000 cash plus the face amount of the note, which is $90,000, for a total of $100,000.

Next, we need to determine K's basis in N Corporation. Since K purchased all 100 shares for $50,000, K's basis is $500 per share.

To calculate the gain, we need to subtract K's basis from the amount realized. 
Amount realized: $100,000 
Basis: $50,000 
Gain: $50,000

However, only $9,000 of the note was received in 2013, so that is the amount of gain that must be reported in that year.

K Purchased All 100 Shares of N Corporation in 2005