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

Dusty Corporation's share of the property is $486,000 (90% of $540,000) and their basis is $300,000. This results in a gain of $186,000. Susan's share of the property is $54,000 (10% of $540,000) and her basis is $20,000. This results in a gain of $34,000.

To allocate the basis, we use the following calculation:

Dusty Corporation: 
($486,000 / $540,000) x $400,000 = $356,000

Susan: 
($54,000 / $540,000) x $400,000 = $40,000

Therefore, the bases are: 
Dusty Corporation: $356,000 
Susan: $40,000

Option C is the correct answer.

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