32. LO.4 Osprey Corporation stock is owned by Pedro and Pittro, who are unre Ped

Question

32. LO.4 Osprey Corporation stock is owned by Pedro and Pittro, who are unre Pedro and Pitro each own 50% of the stock in the corporation. Os owing assets (none of which were acquired in a S351 or contributi ction) that are distributed in complete liquidation of the corporation. t ha on to capi tal transa Adjusted Basis $300,000 200,000 250,000 Fair Market Value $300,000 440,000 140,000 Cash Land Assume that Osprey Corporation distributes the land to Pedro and the cash and equipment to Pittro. a. Determine Osprey's recognized gain or loss on the distribution of land. b. Determine Osprey's recognized gain or loss on the distribution of the equipment.

Explanation / Answer

a) Gain or loss on distribution of land will be equal to difference between adjusted basis and fair market value of land which is computed as follows:-

Gain to be recognized by Osprey on distribution of land = Fair market value - Adjusted Basis

= $440,000 - $200,000 = $240,000

Thus Osprey recognizes a gain of $240,000 on the distribution of land.

b) Loss on distribution of equipment = Fair market Value - Adjusted Basis

= $140,000 - $250,000 = ($110,000)

Thus a loss of $110,000 will be allowed on the equipment to Osprey corporation.

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