K purchased all 100 shares of N Corporation in 2008 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.N's basis in the land is $36,000.On its final return, N will report a gain from the note of

Question

Quizplus · Accepted Answer

N Corporation will report a gain of $54,000 from the note on its final return. The total gain on the sale of the land is calculated as the selling price ($10,000 cash + $90,000 note = $100,000) minus the basis in the land ($36,000), which equals $64,000. Since the corporation distributes both cash and the note to K, the entire gain, including the gain attributable to the note, must be recognized. The gain attributable to the note specifically is calculated as part of the total gain, which is $64,000, not just the $54,000 related to the note. However, the question specifically asks for the gain from the note, which is part of the total gain realized from the sale. Given the information provided, the gain from the note itself is directly related to the note's portion of the total sale price, which is $90,000. The basis allocation to the note would proportionally share in the total gain. The direct question about the note's gain, without specifying the allocation method, leads to an interpretation issue. The correct interpretation based on the information given is that the entire gain, including that from the note, is recognized, but the specific gain from the note is not directly calculated from the provided details without further allocation information.

K Purchased All 100 Shares of N Corporation in 2008