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 $700,000 and a fair market value of $1.2 million.If Loon liquidates Pelican,what basis will Loon have in the assets it acquires from Pelican Corporation?
A)$0.
B)$700,000.
C)$950,000.
D)$1.2 million.
E)None of the above.

Question

Quizplus · Accepted Answer

When Loon Corporation purchased Pelican Corporation, it acquired all of Pelican’s assets which had a basis of $700,000. If Loon were to liquidate Pelican, it would obtain a basis in the assets of $700,000. Loon’s initial investment of $950,000 is irrelevant for determining the basis in the assets.

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