Question

sole shareholder of Condor Corporation. She sold her stock to Melis the Glenda is Glenda's basis in Condor stock was $50,000 at the start of the year. Con s basis in Condor stock was $50,000 on. She sold her stock to Melissa.on October 31 for $150,000 at the start of the year. Condor distributed land to Glenda immediately before the sale. Condor's basis in the land Condor's basis in the land was $20,000 (fair market value of $25,000), On December 31, Melissa received a 375,000 cash distribution from Condor. During the year, Condor has $20,000 of current E & P and its accumulated E balance on January I is $10,000. Which of the following statements is true? a. Glenda recognizes a $110,000 gain on the sale of her stock b. Glenda recognizes a $100,000 gain on the sale of her stock c. Melissa receives $5,000 of dividend income. d. Glenda receives $20,000 of dividend income. e. None of the above

Answer 1

a. Glenda recognizes a $110,000 gain on the sale of her stock

Step-by-step explanation:

Glenda receives 25% of the total distribution for the year. In determining the total distribution, the land is considered at its price value of $25,000 and not its basis value. Also, 25% of the current E & P is allocated to Glenda’s distribution. The entire accumulated current E and P balance of $10,000 is assigned to Glenda’s distribution. Therefore with the current E & P allocation, Glenda has a $15,000 dividend and a $10,000 reduction in stock basis. When the stock is sold, the gain = sales price – basis = $150000 - $40000 = $110000. The $50,000 basis is reduced by $10,000 basis recovery on distribution to become a basis of $40000. There is no accumulated E & P for Melissa, therefore her dividend = her share of the current E & P = 75% ×$20,000 = $15000