Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $545,000. The corporation's basis in the Tea Company stock was $500,000. The land had a basis to Tea Company of $780,000. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives

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aquialaska aquialaska · Answer 1 · 2020-05-08T04:54:45+02:00

Answer:

Gain recognized = $45,000

Basis in the land = $545,000

Explanation:

The computation of amount of gain and basis in the land it receives is shown below:-

This refers to taxable exchange. Therefore the Red Blossom would recognize a gain = Fair Market value - Basis in the Tea Company stock

= $545,000 - $500,000

= $45,000

and

The basis in the land it receives will be the fair value or

= Basis in the Tea Company stock + Gain

= $500,000 + $45,000

= $545,000