ParentCo purchased all of the stock of SubCo on January 1,2007,for $900,000.SubCo produced a loss for 2007 of $275,000 and distributed cash of $15,000 to ParentCo.In 2008,SubCo generated a loss of $850,000; in 2009,it recognized net income of $15,000.What is ParentCo's capital gain or loss if it sells all of its SubCo stock to a nongroup member on January 1,2010,for $50,000?
A)($210,000).
B)($850,000).
C)$50,000.
D)$275,000.
E)Some other amount.

Question

Quizplus · Accepted Answer

When accumulated deficits in the subsidiary's post-acquisition earnings and profits exceed the acquisition price,an excess loss account is created to permit the group to recognize current subsidiary losses while avoiding a negative stock basis.If the subsidiary stock is sold to a nongroup member,the balance of the excess loss account is recognized as capital gain income by the seller.
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ParentCo Purchased All of the Stock of SubCo on January