Sarah owns Gonzalez Corporation, a Corporation. Sarah’s basis for his Gonzalez s
ID: 2544542 • Letter: S
Question
Sarah owns Gonzalez Corporation, a Corporation. Sarah’s basis for his Gonzalez stock is $120,000. The corporation’s assets are summarized below. In addition, Gonzalez Corporation owes creditors $80,000
Gonzalez Corporation sells the equipment for $300,000 to an unrelated purchaser. Gonzalez then liquidates paying all creditors and any outstanding tax obligations first. Assume a 34% tax rate for Gonzalez. Analyze this transaction. What is the impact to Sarah and Gonzalez Corporation?
Assets Adjusted Basis Fair Market Values Cash $90,000 $90,000 Cain Corporation Stock 100,000 225,000 Other Equipment 140,000 300,000Explanation / Answer
Assets Fair Market Value Sale of equipement Payment to creditor Net Assets A B C D = A+B+C Cash $ 90,000 $ 3,00,000 $ -80,000 $ 3,10,000 Cain Corporation Stock $ 2,25,000 $ - $ - $ 2,25,000 Other Equipment $ 3,00,000 $ -3,00,000 $ - $ - Creditors $ -80,000 $ - $ 80,000 $ - Gross Proceeds $ 5,35,000 Tax @ 34% $ 1,81,900 Proceeds after tax $ 3,53,100 Gonzalez stock value $ 1,20,000 Profit $ 2,33,100
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