Clothing Inc.and Mr.Red Button formed Apparel Corp.in 1960.It is engaged in the manufacture and sale of shirts and ties.Apparel acquired the tie business from Silk Inc.Now it desires to get out of the tie business but continue in the shirt business.The primary assets of the tie business are: $\begin{array} { l }
\text { Assets }&\text { Adiusted Basis }&\text { Fair Market Value }\
\text { Plant }&\$60,000&\$200,000\\text { Equipment }&20,000&45,000\
\text { Truck }&15,000&8,000
\end{array}$
Assume all necessary requirements are satisfied unless otherwise stated or implied.
Assuming that Apparel distributed the assets of the tie business in redemption of all of the stock of Red Button, Apparel would recognize a gain of $165,000 and a loss of $7,000.

Question

Clothing Inc.and Mr.Red Button formed Apparel Corp.in 1960.It is engaged in the manufacture and sale of shirts and ties.Apparel acquired the tie business from Silk Inc.Now it desires to get out of the tie business but continue in the shirt business.The primary assets of the tie business are: $\begin{array} { l  }
\text { Assets }&\text { Adiusted Basis }&\text { Fair Market Value }\
\text { Plant }&\$60,000&\$200,000\\text { Equipment }&20,000&45,000\
\text { Truck }&15,000&8,000
\end{array}$
 Assume all necessary requirements are satisfied unless otherwise stated or implied.
Assuming that Apparel distributed the assets of the tie business in redemption of all of the stock of Red Button, Apparel would recognize a gain of $165,000 and a loss of $7,000.

Quizplus · Accepted Answer

Apparel would recognize a gain of $158,000 ($200,000 + $45,000 - $60,000 - $20,000 for the plant and equipment, since gains are recognized on distributions of property in redemption of stock, but it would not recognize the $7,000 loss on the truck because losses are generally not recognized on distributions of property to shareholders.

Clothing Inc Assume All Necessary Requirements Are Satisfied Unless Otherwise Stated or in the Manufacture