(2) XYZ Corporation distributes a building to Smith, an individual and fifty (50) percentshareholder. The building has a FMV of $50,000 and an adjusted basis of $68,000.Without considering the distribution of the building to Smith, XYZ Corporation hadearnings and profits of $26,500. Smith adjusted basis in his interest in XYZ Corporationwas equal to $15,000.(a) What is the amount of the section 301 distribution to Smith?(b) What is Smith's basis in the building following its distribution to Smith?(c) What is the amount of gain recognized by XYZ Corporation as a result of thedistribution of the building to Smith?(d) What is the character of the distribution to Smith and what is the amount of XYZ'searnings and profits following the distribution?

Answered: (2) XYZ Corporation distributes a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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(2) XYZ Corporation distributes a building to Smith, an individual and fifty (50) percent
shareholder. The building has a FMV of $50,000 and an adjusted basis of $68,000.
Without considering the distribution of the building to Smith, XYZ Corporation had
earnings and profits of $26,500. Smith adjusted basis in his interest in XYZ Corporation
was equal to $15,000.
(a) What is the amount of the section 301 distribution to Smith?
(b) What is Smith's basis in the building following its distribution to Smith?
(c) What is the amount of gain recognized by XYZ Corporation as a result of the
distribution of the building to Smith?
(d) What is the character of the distribution to Smith and what is the amount of XYZ's
earnings and profits following the distribution?

Expert Solution

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According to the scenario, Smith, a person and fifty i.e., 50% stakeholder, receives a building from XYZ Corporation. The presented situation also leads us to conclude that the building has an adjusted basis of $68,000 and an FMV of $50,000. XYZ Corporation made $26,500 in revenue and profits without considering the distribution of said building towards Smith. To conclude, it is stated that Smith's adjusted basis for his ownership stake in XYZ Corporation was $20,000.00.

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