During the current year, Ecru Corporation is liquidated and distributes its only asset, land, to Kena, the sole shareholder. On the date of distribution, the land has a basis of $250,000, a fair market value of $650,000, and is subject to a liability of $500,000. Kena, who takes the land subject to the liability, has a basis of $120,000 in the Ecru stock. With respect to the distribution of the land, which of the following statements is correct?
A) Kena recognizes a gain of $530,000.
B) Ecru Corporation recognizes a gain of $250,000.
C) Kena recognizes a gain of $30,000.
D) Kena has a basis of $250,000 in the land.
E) None of these.

Question

Quizplus · Accepted Answer

Kena recognizes a gain of $30,000, calculated as the fair market value of the land ($650,000) minus the liability assumed ($500,000) minus her basis in the stock ($120,000).

During the Current Year, Ecru Corporation Is Liquidated and Distributes