Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgageof $2,000. Z's adjusted basis for this building is $1,500. All of Z's stock is owned by C, whose basis for his stock in Z is$500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that thecorporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject tothe mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining afterpaying its taxes) to C in cancellation of C's stock in the current year.Same facts as above, except that D agrees to pay Z an additional contingent amount for the building in order to induce Z tosell. The gross fair market value of Z's property is actually $5,000. D also agrees to give a Z "contingent" right to receive fromD an additional $2,500 over 10 years if D earns profits from the building in excess of profits historically earned.O a. If the transaction is held open, Z will recognize $3,500 gain on the sale.Ob. Upon collecting additional amounts from D, C will recognize additional capital gain.OG Upon collecting additional amounts from D.. Z might also be expected to recognize additional gain, although Bittker &Eustice apparently take a contrary position.Od. None of the above.Oe. All of the above, except D.

Z sells building to D = $3,000 Z adjustment basis of building = $1,500 Gain on sale = $3,000 -…

Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000. Z's adjusted basis for this building is $1,500. All of Z's stock is owned by C, whose basis for his stock in Z is $500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of C's stock in the current year.

Z owns a rental building (its only asset) with a gross fair market value of $5,000 subject to the non-recourse mortgage of $2,000. Z's adjusted basis for this building is $1,500. All of Z's stock is owned by C, whose basis for his stock in Z is $500. Z had 1,000 of E&P. Z is on the accrual method of accounting and reports on the calendar year. Assume that the corporate tax payable by Z on $3,500 gained is $1,250 and on $3,000 gained is $1,000. Z sells the building, subject to the mortgage, to D in the current year for $3,000 in cash. Z then liquidates, distributing all of the cash (remaining after paying its taxes) to C in cancellation of C's stock in the current year.

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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