Ball Corporation owns 80% of Net Corporation's stock and Jack owns the remaining 20% of Net Corporation's stock.Ball's basis in the Net stock is $200,000 and Jack's basis in the Net stock is $100,000.Under a plan of complete liquidation,Ball Corporation receives property with an adjusted basis of $400,000 and an FMV of $800,000 and Jack receives property with an adjusted basis of $50,000 and an FMV of $200,000.Ball and Jack's recognized gains on the liquidation are:

Question

Quizplus · Accepted Answer

To calculate recognized gains, we need to compare the FMV of the property received to the adjusted basis of the Net Corporation stock.

For Ball Corporation:

- FMV of property received = $800,000
- Adjusted basis of Net Corporation stock = $200,000 x 80% = $160,000
- Recognized gain = $800,000 - $160,000 = $640,000

For Jack:

- FMV of property received = $200,000
- Adjusted basis of Net Corporation stock = $100,000 x 20% = $20,000
- Recognized gain = $200,000 - $20,000 = $180,000

Therefore, the total recognized gains on the liquidation are $640,000 + $180,000 = $820,000, which corresponds to choice B.

Ball Corporation Owns 80% of Net Corporation's Stock and Jack