Final answer:
Oriole Corporation recognizes a $450,000 gain on the liquidation distribution of land because the fair market value exceeds the land's basis, despite the liability surpassing the asset's fair market value.
Step-by-step explanation:
Oriole Corporation recognizes a gain of $450,000 on the distribution of land pursuant to a complete liquidation:
In the context of corporate taxation, when a corporation liquidates and distributes assets to its shareholders, it must recognize gains or losses as if it had sold the assets at fair market value. Oriole Corporation is distributing land with a basis of $350,000, which has a fair market value of $800,000.
However, the land is subject to a liability of $920,000, which exceeds its fair market value. The amount realized on the distribution is the fair market value of the land minus the liability against it, which is zero ($800,000 - $920,000 = -$120,000), but not less than zero. Hence, the recognized gain is the fair market value minus the basis, which is $800,000 - $350,000 = $450,000. No loss is recognized as the liability exceeds the fair market value. Since the liability ($920,000) is greater than the FMV ($800,000), there is no gain or loss recognized on the distribution.