Abby and Bera each owns 50 shares of stock in AB Corp, comprising all of AB Corp's outstanding stock. Abby's basis in her 50 shares of stock is $1,000. Bera's basis in her 50 shares of stock is $800. In a complete liquidation, AB Corp distributed cash of $2,000 to Abby and an equipment with a fair market value of $2,000 to Bera, in redemption of all of its outstanding stock. AB Corp's basis in the equipment is $1,500. Assume that AB Corp has a reserve for liquidating expenses and paying any tax incurred in connection with the liquidation. (a) What is the tax treatment to Abby? (b) What is the tax treatment to Bera? (c) What is the tax treatment to AB Corp?

Abby and Bera each owns 50 shares of stock in AB Corp, comprising all of AB Corp's outstanding stock. Abby's basis in her 50 shares of stock is $1,000. Bera's basis in her 50 shares of stock is $800. In a complete liquidation, AB Corp distributed cash of $2,000 to Abby and an equipment with a fair market value of $2,000 to Bera, in redemption of all of its outstanding stock. AB Corp's basis in the equipment is $1,500. Assume that AB Corp has a reserve for liquidating expenses and paying any tax incurred in connection with the liquidation. (a) What is the tax treatment to Abby? (b) What is the tax treatment to Bera? (c) What is the tax treatment to AB Corp?

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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