Final answer:
The basis of the property received by Dusty Corporation and Susan is their respective stock bases in Palace Corporation, $400,000 and $20,000, respectively. Real estate transactions show Freda's equity in her house is $250,000, while Ben's equity is $100,000 after paying off part of his bank loan. For Babble, Inc., an investor would calculate the present value of future dividends to price a share.
Step-by-step explanation:
The question pertains to the distribution of assets upon liquidation of a corporation and the basis of property received by shareholders. When Dusty Corporation, which owns 90% of Palace Corporation's stock, and Susan, who owns the remaining stock, receive assets upon the corporation's liquidation, the basis of the property received by each shareholder should equal their respective stock basis in the company, unless otherwise adjusted by tax laws. The adjusted basis for Dusty Corporation would be $400,000 and for Susan, it would remain at her original stock basis of $20,000. However, the fair market value (FMV) of the properties distributed is different from the adjusted basis, which results in recognized gain if the properties are later sold.
Additionally, showing calculations related to real estate transactions:
Freda's equity in her house is $250,000 as she owes nothing to the bank.Ben has a house valued at $160,000 with a remaining loan balance of $60,000, so his equity is $100,000.
In a hypothetical scenario of investing in Babble, Inc., an investor would calculate the present value of future dividends to determine what they would be willing to pay for a share of stock in the company.