Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions Incorporated (WFI). After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet: FMV Adjusted Tax Basis Appreciation Cash $ 200,000 $ 200,000 Building 50,000 10,000 40,000 Land 150,000 90,000 60,000 Total $ 400,000 $ 300,000 $ 100,000 Under the terms of the agreement, Shauna will receive the $200,000 cash in exchange for her 50 percent interest in WFI. Shauna's tax basis in her WFI stock is $50,000. Danielle will receive the building and land in exchange for her 50 percent interest in WFI. Danielle's tax basis in her WFI stock is $100,000. Assume for purposes of
Shauna and Danielle decided to liquidate their jointly owned corporation, Woodward Fashions Incorporated (WFI). After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet:
| FMV | Adjusted Tax Basis | Appreciation | |
|---|---|---|---|
| Cash | $ 200,000 | $ 200,000 | |
| Building | 50,000 | 10,000 | 40,000 |
| Land | 150,000 | 90,000 | 60,000 |
| Total | $ 400,000 | $ 300,000 | $ 100,000 |
Under the terms of the agreement, Shauna will receive the $200,000 cash in exchange for her 50 percent interest in WFI. Shauna's tax basis in her WFI stock is $50,000. Danielle will receive the building and land in exchange for her 50 percent interest in WFI. Danielle's tax basis in her WFI stock is $100,000. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation.
Note: Negative amounts should be indicated by a minus sign.
Required:
- What amount of gain or loss does WFI recognize in the complete liquidation?
- What amount of gain or loss does Shauna recognize in the complete liquidation?
- What amount of gain or loss does Danielle recognize in the complete liquidation?
- What is Danielle's tax basis in the building and land after the complete liquidation?
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