Newman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Newman decided to liquidate SP Corporation by distributing the assets to Newman and Kenny. The tax basis of Newman's shares is $9,000, and the tax basis of Kenny's shares is $4,000. SP reported the following balance sheet at the date of liquidation: Cash Accounts receivable. Stock investment Land Total assets Common stock-Newman (90%) Common stock-Kenny (10%) Total shareholder equity Required: Adjusted tax basis $ 22,000 9,000 8,200 26,000 $ 65,200 FMV $ 22,000 9,000 20,000 149,000 $ 200,000 $ 180,000 20,000 $ 200,000 a. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes $20,000 of cash to Kenny and the remaining assets to Newman. b. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes the stock investment to Kenny and the remaining assets to Newman. Assume that SP's tax rate is zero. c. What form needs to be filed with the liquidation of SP?

Newman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several years of operations, Newman decided to liquidate SP Corporation by distributing the assets to Newman and Kenny. The tax basis of Newman's shares is $9,000, and the tax basis of Kenny's shares is $4,000. SP reported the following balance sheet at the date of liquidation: Cash Accounts receivable. Stock investment Land Total assets Common stock-Newman (90%) Common stock-Kenny (10%) Total shareholder equity Required: Adjusted tax basis $ 22,000 9,000 8,200 26,000 $ 65,200 FMV $ 22,000 9,000 20,000 149,000 $ 200,000 $ 180,000 20,000 $ 200,000 a. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes $20,000 of cash to Kenny and the remaining assets to Newman. b. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes the stock investment to Kenny and the remaining assets to Newman. Assume that SP's tax rate is zero. c. What form needs to be filed with the liquidation of SP?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: During the year, P&B Construction Corp.distributed a crane used in its business to S, who owns 100…

A: Crane's worth = $10,000 Basis = $19,000 Land's worth = $70,000 Basis = $40,000 P&B Construction…

Q: At the beginning of the current year, Brou Inc. sells all of its assets and pays its liabilities.…

A: Deemed dividend is the part of dividend that is not actually paid but treated as dividend for the…

Q: The stock of Magenta Corporation is owned by Fuchsia Corporation (95%) and Marta (5%). Magenta is…

A: Liquidation gains / losses: When a company is being liquidated, the assets would be transferred to…

Q: Mike Ltd purchased the outstanding voting shares of Sam Ltd at the beginning of 2009 for $387,000.…

A: Acquisition refers to the acquisition of common shares and voting rights in one company by another…

Q: On January 1 of the current year, Broadbent Corporation owned 90 percent of the outstanding stock of…

A: Redemption of stocks means shareholders sell some part of their shares back to company.

Q: On January 1, 2022, Halstead, Incorporated, purchased 71,000 shares of Sedgwick Company common stock…

A: Accrual Income: Income accrual is the total amount of income that is recognized or earned during a…

Q: Fast Ltd. is a public company that prepares its consolidated financial statements in accordance with…

A: The objective of the question is to determine the reporting amounts for research and development and…

Q: Oriole, In the follow

A: Liquidation of a company Liquidation of a company means the termination of the legal existence of…

Q: Senior, Ltd., acquires all of the stock of JuniorCo for $30,000,000 at the beginning of year 1. The…

A: Stock basis: Stock basis is the value based on which the taxable provisions would be applied.

Q: What is the gain that Better Corp will realize upon liquidation? What is the gain that Barry will…

A: The gain or loss upon the liquidation for the company upon the liquidation is the computation in…

Q: Rock Corporation distributed property with a fair market value of $100,000 and an adjusted basis of…

Q: On January 1, 2019, Halstead, Inc., purchased 73,000 shares of Sedgwick Company common stock for…

A: Income accrual is that income which is earned but is yet to be received. As per the accrual method…

Q: [The following information applies to the questions displayed below. Maple Corporation, a…

A: Gain arises when the cash received is higher than the stock basis amount. The gain is considered to…

Q: Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $28,000 dividend to…

A: Given information is: Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a…

Q: Pit Coporation owns 75% of Stop Company's outstanding common stock. On 08/28/21, Pit sold inventory…

A: Consolidated entry is the single entry by taking multiple accounts or businesses into a single point…

Q: The stock of Quail Corporation is held as follows: 85% by Pheasant Corpo- ration and 15% by Gisela,…

A: The following computations are done for Quail Corporation to record gain on sale on the FMV (fair…

Q: Prime, Inc., owns 100% of Steak Corporation. For the current year, Prime reports net income from own…

A: Consolidated amounts in a financial statement includes the elements taken from the financial…

Q: The following transactions transpire during the liquidation of the Wingler, Norris, Rodgers, and…

A: Here we assume that all partners having equal share in in profits and losses and also in ownership…

Question

Newman Corporation owns 90 shares of SP Corporation. The remaining 10 shares are owned by Kenny (an individual). After several
years of operations, Newman decided to liquidate SP Corporation by distributing the assets to Newman and Kenny. The tax basis of
Newman's shares is $9,000, and the tax basis of Kenny's shares is $4,000. SP reported the following balance sheet at the date of
liquidation:
Cash
Accounts receivable
Stock investment
Land
Total assets
Common stock-Newman (90%)
Common stock-Kenny (10%)
Total shareholder equity
Required:
Adjusted tax
basis
$ 22,000
9,000
8,200
26,000
$ 65,200
FMV
$ 22,000
9,000
20,000
149,000
$ 200,000
$ 180,000
20,000
$ 200,000
a. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes
$20,000 of cash to Kenny and the remaining assets to Newman.
b. Compute the gain or loss recognized by SP, Newman, and Kenny on a complete liquidation of the corporation, where SP distributes
the stock investment to Kenny and the remaining assets to Newman. Assume that SP's tax rate is zero.
c. What form needs to be filed with the liquidation of SP?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Gain or loss to be recognized-Question (a)

VIEW

Step 2: Gain or loss to be recognized-Question (b)

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Garrison holds a controlling interest in Robertson's outstanding stock. For the current year, the following information has been gathered about these two companies: Garrison Robertson Separate operating income $ 300,000 $ 200,000 (includes $50,000 intra-entity gross profit in ending inventory) Dividends paid 32,000 50,000 Tax rate 21 % 21 % Garrison uses the initial value method to account for the investment in Robertson. Garrison's separate operating income figure does not include dividend income for the current year. Assume that Garrison owns 80 percent of Robertson's voting stock. On a consolidated tax return, what amount of income tax is paid? Assume that Garrison owns 80 percent of Robertson's voting stock. On separate tax returns, what total amount of income tax is paid? Assume that Garrison owns 70 percent of Robertson's voting stock. What total amount of income tax expense does a consolidated income statement…
ss
On January 1, 2022, Halstead, Incorporated, purchased 71,000 shares of Sedgwick Company common stock for $1,554,000, giving Halstead 25 percent ownership and the ability to apply significant influence over Sedgwick. Any excess of cost over book value acquired was attributed solely to goodwill. Sedgwick reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout these years. Dividends are declared and paid in the same period. Year 2022 2023 2024 Net Income $ 375,000 442,000 619,000 Annual Cash Dividends (paid quarterly) $ 112,000 154,000 173,000 On July 1, 2024, Halstead sells 11,360 shares of this investment for $27 per share, thus reducing its interest from 25 to 21 percent, but maintaining its significant influence. Required: Determine the amounts that would appear on Halstead's 2024 Income statement relating to its ownership and partial sale of its Investment in Sedgwick's common stock. Total income accrual (no unearned gains) on sale of…
Landry owns 50 of 250 outstanding shares of Kelly Manufacturing corporation. How many of Landry’s shares must be redeemed in order for the redemption to qualify as disproportionate? Assume that Kelly Manufacturing corporation has $100,000 in current earnings & profits, has no accumulated e&p, and there were no dividends or other distributions this year. If Landry’s stock is redeemed for $15,000 on December 31, what is the effect on earnings and profits?
Pit Coporation owns 75% of Stop Company's outstanding common stock. On 08/28/21, Pit sold inventory to Stop in exchange for $540,000 cash. Pit had purchased the inventory on 05/02/21 at a cost of $324,000. On 12/21/21, Stop sold 80% of the inventory to 3rd parties at a cash price of $720,000. The other 20% of the inventory remains on hand at 12/31/21. Pit's Journal Entries would include: To Acquire The Inventory: A debit to Inventory and a credit to Cash in the amount of: To Sell the Inventory to Stop: A debit to Cash and a credit to Sales in the amount of: A debit to Cost of Goods Sold and a credit to Inventory in the amount of:
The stock in Toucan Corporation is held equally by two brothers. Four years ago, the shareholders transferred property (basis of $200,000, fair market value of $220,000) to Toucan Corporation as a contribution to capital. In the current year and pursuant to a complete liquidation of Toucan, the property is distributed proportionately to the brothers. At the time of the distribution, the property had a fair market value of $40,000. What amount of loss will Toucan Corporation recognize on the distribution of the property? Oa. $160,000 Ob. $0 Oc. $20,000 Od. $180,000
Godo
Garrison holds a controlling interest in Robertson's outstanding stock. For the current year, the following information has been gathered about these two companies: Garrison Robertson Separate operating income $ 300,000 $ 200,000 (includes $50,000 intra-entity gross profit in ending inventory) Dividends paid 32,000 50,000 Tax rate 21 % 21 % Garrison uses the initial value method to account for the investment in Robertson. Garrison's separate operating income figure does not include dividend income for the current year. Assume that Garrison owns 80 percent of Robertson's voting stock. On a consolidated tax return, what amount of income tax is paid? Assume that Garrison owns 80 percent of Robertson's voting stock. On separate tax returns, what total amount of income tax is paid? Assume that Garrison owns 70 percent of Robertson's voting stock. What total amount of income tax expense does a consolidated income statement…
Par Co. Incurred the following costs in order to acquire all of the shares of Sub Co.: • Purchase price (paid in cash) $500,000 • Legal fees $10,000 The business combination agreement states that if the earnings of Sub Co. exceed an average of $2.50 per share over the next two years, Par Co. will make an additional cash payment of $100,000 to the former shareholders of Sub Co. Recent earnings per share for Sub Co. have averaged $1.75. On the date of the business combination, it is not known whether the earnings target will be met. On the date of the combination, the acquisition cost would be calculated as: Multiple Cholce $500,000 $510,000 $610,000 $600,000
During its first year of operation, K Corporation had a gross profit from operations of $180,000 anddeductions of $250,000 before considering its dividend income or dividends-received deduction. K received dividends of $50,000 from a taxable domestic corporation in which K owned 4.5 percent of the stock.Assuming its ownership of the dividend-paying corporation’s stock is not debt financed, what is K Corporation’s net operating loss for the year? A. 20,000 B. 49,000 C. 45,000 D. 65,000 E. 70,000
6. The stock in Black Corporation is owned by Joseph and Elizabeth, who are unrelated. Joseph owns 80% and Elizabeth owns 20% of the stock in Black Corporation. The following assets are to be distributed in complete liquidation of Black Corporation: Cash Inventory Equipment Adjusted Basis Fair Market Value $300,000 $300,000 75,000 100,000 200,000 100,000 a. What gain or loss would Black Corporation recognize if it distributes the cash and equipment to Joseph and the inventory to Elizabeth? b. What gain or loss would Black Corporation recognize if it distributes the cash and inventory to Joseph and the equipment to Elizabeth?
The stock in Ivory Corporation is owned by Gold Corporation (80%) and Imelda (20%). Gold Corporation purchased its shares in Ivory nine years ago at a cost of $650,000, and Imelda purchased her shares in Ivory four years ago at a cost of $175,000. Ivory Corporation has the following assets that are distributed in complete liquidation: Adjusted Basis Fair Market ValueCash $600,000 $600,000Inventory 80,000 200,000Equipment 350,000 200,000a. Assume that Ivory Corporation distributes the cash and inventory to Gold Corporation and the equipment to Imelda. What are the tax consequences of the distributions to Ivory Corporation, to Gold Corporation, and to Imelda?b. Assume that Ivory Corporation distributes the cash and equipment to Gold Corporation and the inventory to Imelda. What are the tax consequences of the distributions to Ivory Corporation, to Gold Corporation, and to Imelda?