Three years ago, Loon Corporation purchased 100% of the stock of Pelican Corporation for $950,000. Currently, Pelican Corporation has assets with a basis of $1.1 million and a fair market value of $1.3 million. If Loon liquidates Pelican, what basis will Loon have in the assets it acquires from Pelican Corporation?

Question

Quizplus · Accepted Answer

When a parent company purchases 100% of the stock of a subsidiary, the parent company is deemed to acquire all assets at their adjusted basis, not fair market value. Therefore, Loon Corporation would have a basis of $1.1 million in the assets it acquires from Pelican Corporation if it were to liquidate the subsidiary.

Three Years Ago, Loon Corporation Purchased 100% of the Stock