4. Ball Corporation owns 90% of Net Corporation\'s stock and Jack owns the remai

Question

4. Ball Corporation owns 90% of Net Corporation's stock and Jack owns the remaining 10% of Net Corporation's stock. Ball's basis in the Net stock is $300,000 and Jack's basis in the Net stock is $50,000. Under a plan of complete liquidation, Ball Corporation receives property with an adjusted basis of $300,000 and an FMV of $700,000 and Jack receives property with an adjusted basis of $40,000 and an FMV of $150,000 and subject to a $20,000 mortgage, which is assumed by Jack.

a) What is the amount of Ball Corporation’s gain or loss on the distribution? And what is the basis of property received by Ball Corporation?

b) What is the amount of Jack’s gain or loss on the distribution? And what is the basis of property received by Jack?

c) What is the amount of Net Corporation’s gain or loss on the distribution?

Explanation / Answer

Answer-

a)Calculation of total gains or loss of Ball Corporation on liquidation

b)Calculation of total gains or loss of jack;s on liquidation

c) Total Liability of Net Corporation =$350000+ $20000(Mortgage)=$370000

Less Propertiy issued against stock=$700000+$150000=$850000

Total Loss on liqudation = $850000-$370000=$480000

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