Question

The stock in Rhea Corporation is owned by Jennifer (80%) and Lucy (20%), mother and daughter. In a liquidation of the corporation in the current year, Rhea distributes land that it purchased two years ago for $675,000 to Lucy. The property has a fair market value of $450,000 on the date of distribution. One year later, Lucy sells the land for $400,000. What loss, if any, will Rhea Corporation recognize with respect to the distribution of land?

A. $0
B. $45,000
C. $225,000
D. $275,000

Answer 1

Rhea Corporation

Rhea Corporation does not recognize any loss with the distribution of land.

A $0.

Step-by-step explanation:

a) Data and Calculations:

Percentage shareholding by Jennifer = 80%

Percentage shareholding by Lucy = 20%

Land distributed to Lucy = $675,000

Fair market value of the land at distribution = $450,000

Selling price of land a year after by Lucy = $400,000

Lucy will recognize a loss of $275,000 ($675,000 - $400,000)

But Rhea Corporation will not recognize any loss from the distribution of land to Lucy.