The stock of Penguin Corporation is held as follows: 85% by Duck Corporation and 15% by Gerald, an individual. Penguin Corporation is liquidated in December of the current year, pursuant to a plan adopted earlier in the year. Penguin Corporation distributes land with a basis of $350,000 and fair market value of $390,000 to Gerald in liquidation of his stock interest. Gerald had a basis of $200,000 in his Penguin stock. How much gain will Penguin Corporation recognize in this liquidating distribution?
A)$0.
B)$40,000.
C)$190,000.
D)$390,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Penguin Corporation will recognize a gain of $40,000, which is the difference between the fair market value ($390,000) and the basis ($350,000) of the land distributed to Gerald.

The Stock of Penguin Corporation Is Held as Follows: 85