Majority Corporation owns 90% of Subsidiary Corporation's stock and has a $36,000 basis in that stock. Melena owns the other 10% and has a $4,000 basis in her stock. Subsidiary holds$40,000 cash and other assets having a $130,000 FMV and a $30,000 adjusted basis. Pursuant to a plan of liquidation, Subsidiary (1) distributes to Melena assets having a $13,000 FMV and a$3,000 adjusted basis prior to the liquidation, (2) distributes to Majority assets having a $117,000 FMV and a $27,000 adjusted basis prior to the liquidation, and (3) distributes ratably to the twoshareholders any cash remaining after taxes. Assume a 21% corporate tax rate and a 15% capital gains tax rate.Read the requirements.Requirement a. What are the tax consequences of the liquidation to Majority Corporation, Subsidiary Corporation, and Melena?We will address the tax consequences to each party separately, beginning with Subsidiary Corporation. (Round all answers to the nearest whole dollar. Enter a 0 if a gain or loss does not apply orfor any zero balances. Use a minus sign or parentheses to enter a loss.)Tax consequences to Subsidiary Corporation:Subsidiary recognizes a0 gain/(loss) on the distribution to Majority Corporation and adistribution of property to Melena. Subsidiary's total tax on any net gains isto Majority andto Melena.leaving$gain/(loss) on thecash to distribute-

It is the change in material amount of the assets or securities recorded at their initial cost. The…

Majority Corporation owns 90% of Subsidiary Corporation's stock and has a $36,000 basis in that stock. Melena owns the other 10% and has a $4,000 basis in her stock. Subsidiary holds $40,000 cash and other assets having a $130,000 FMV and a $30,000 adjusted basis. Pursuant to a plan of liquidation, Subsidiary (1) distributes to Melena assets having a $13,000 FMV and a $3,000 adjusted basis prior to the liquidation, (2) distributes to Majority assets having a $117,000 FMV and a $27,000 adjusted basis prior to the liquidation, and (3) distributes ratably to the two shareholders any cash remaining after taxes. Assume a 21% corporate tax rate and a 15% capital gains tax rate. Read the requirements.

Majority Corporation owns 90% of Subsidiary Corporation's stock and has a $36,000 basis in that stock. Melena owns the other 10% and has a $4,000 basis in her stock. Subsidiary holds $40,000 cash and other assets having a $130,000 FMV and a $30,000 adjusted basis. Pursuant to a plan of liquidation, Subsidiary (1) distributes to Melena assets having a $13,000 FMV and a $3,000 adjusted basis prior to the liquidation, (2) distributes to Majority assets having a $117,000 FMV and a $27,000 adjusted basis prior to the liquidation, and (3) distributes ratably to the two shareholders any cash remaining after taxes. Assume a 21% corporate tax rate and a 15% capital gains tax rate. Read the requirements.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations

Section: Chapter Questions

Problem 15CE

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