In the current year, Blue Corporation (With E&P of $100,000) made the following
ID: 2499816 • Letter: I
Question
In the current year, Blue Corporation (With E&P of $100,000) made the following property distributions to its shareholders (all corporations)
Adjusted Basis Fair Market Value Gain(Loss)
Texaco stock investment $20,000 $15,000 $(5,000)
Non-LIFO inventory 10,000 12,000 2,000
Blue Corporation is not a member of a controlled group. [I include this statement for the sake of accuracy, only. For solution purposes you may ignore it.] As a result of the distribution,
a. Blue Corporation recognizes a gain of $2,000 but does not recognize any loss.
b. Blue Corporation recognizes a gain of $2,000 and a loss of $5,000.
c. Blue Corporation recognizes a loss of $3,000.
d. Blue Corporation has no recognized gain or loss.
e. None of the above.
Explanation / Answer
c.Blue Corporation recognise a loss of $3,000.
Because while distributing the property to its shareholders,the whole property amount need to be recoginse in profit and loss account.