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ABC Corporation owns 95 % of Subsidiary Corporation. Buddy owns 5% of Subsidiary Corporation ABC's basis in

ABC Corporation owns 95 % of Subsidiary Corporation. Buddy owns 5% of Subsidiary Corporation ABC's basis in

FINANCIAL ACCOUNTING
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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ABC Corporation owns 95 % of Subsidiary Corporation. Buddy owns 5% of Subsidiary Corporation. ABC's basis in Subsidiary Corporation shares is $100,000 and Buddy's basis in Subsidiary Corporation shares is $10,000. In a liquidating distribution, ABC Corporation receives $950,000 and Buddy receives $50,000. What gain must ABC and Buddy recognize? A. ABC recognizes $850,000 capital gain and Buddy recognizes $40,000 capital gain B. ABC recognizes no gain and Buddy recognizes $40,000 capital gain C. ABC recognizes $850,000 capital gain and Buddy recognizes $50,000 dividend income D. ABC recognizes no gain and Buddy recognizes $50,000 dividend income
Transcribed Image Text:ABC Corporation owns 95 % of Subsidiary Corporation. Buddy owns 5% of Subsidiary Corporation. ABC's basis in Subsidiary Corporation shares is $100,000 and Buddy's basis in Subsidiary Corporation shares is $10,000. In a liquidating distribution, ABC Corporation receives $950,000 and Buddy receives $50,000. What gain must ABC and Buddy recognize? A. ABC recognizes $850,000 capital gain and Buddy recognizes $40,000 capital gain B. ABC recognizes no gain and Buddy recognizes $40,000 capital gain C. ABC recognizes $850,000 capital gain and Buddy recognizes $50,000 dividend income D. ABC recognizes no gain and Buddy recognizes $50,000 dividend income
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