Question

Indigo Corporation wants to transfer cash of $182,400 or property worth $182,400 to one of its shareholders, Linda, in a redemption transaction that will be treated as a qualifying stock redemption. If Indigo distributes property, the corporation will choose between two assets that are each worth $182,400 and are no longer needed in its business: Property A (basis of $91,200) and Property B (basis of $237,120).

a. The distribution of Property A would result in a $____________ recognized gain to Indigo.
b. The distribution of Property B would result in a $____________ disallowed loss to Indigo.
c. A sale of Property B to an unrelated party would result in a $____________ recognized loss to Indigo.

Answer 1

Answer and Explanation:

The computation is shown below:

a. The distribution of Property A would result in a recognized gain

= $182,400 - $91,200

= $91,200

b. The distribution of Property B would result in a disallowed loss is

= $182,400 - $237,120

= -$54,720

c. The sale of Property B to an unrelated party in a recognized loss is

= $182,400 - $237,120

= -$54,720