Dusty Corporation owns 90% of Palace Corporation's stock and Susan owns the remaining stock.Dusty Corporation's stock basis is $300,000 and Susan's stock basis is $20,000.Under a plan of complete liquidation,Dusty Corporation receives property with a $400,000 adjusted basis and a $540,000 FMV and Susan receives property with a $20,000 adjusted basis and a $60,000 FMV.The bases of the properties are:

Question

Quizplus · Accepted Answer

When a shareholder receives property in a complete liquidation, the basis of the property for the shareholder is equal to the adjusted basis of the stock surrendered, decreased by any liabilities assumed by the shareholder, and increased by any gain recognized by the shareholder.
For Dusty Corporation:
Adjusted basis of stock surrendered = $300,000
FMV of property received = $540,000
Gain recognized = $240,000 (540,000-300,000)
Therefore, the basis of the property received by Dusty Corporation is $540,000.
For Susan:
Adjusted basis of stock surrendered = $20,000
FMV of property received = $60,000
Therefore, the basis of the property received by Susan is $20,000.
Hence, the correct answer is C.

Dusty Corporation Owns 90% of Palace Corporation's Stock and Susan