Fender Corporation makes a cash distribution of $40,000 to Gibson in complete liquidation of the corporation. Gibson's basis in Fender stock is $18,000. What must Gibson report as income from the cash distribution?
A)$- 0 -
B)$18,000
C)$22,000
D)$40,000

Question

Quizplus · Accepted Answer

The amount of income Gibson must report from the cash distribution is $22,000. To calculate this, we subtract Gibson's basis in the Fender stock ($18,000) from the amount of the cash distribution ($40,000), which gives us $22,000. Therefore, the correct answer is C. Option A ($-0-$) is incorrect because there is income to report, Option B ($18,000) is incorrect because the amount of the cash distribution exceeds Gibson's basis in the stock, and Option D ($40,000) is incorrect because that is the total amount of the cash distribution, not the amount of income to report.

Fender Corporation Makes a Cash Distribution of $40,000 to Gibson