Problem 20-30 Liquidation of Subsidiary – Tax Consequences to Subsidiary and Parent (LO. 2) At the time of its liquidation under 332, Cardinal Corporation (E & P of $560,000) had the followi

Problem 20-30

Liquidation of Subsidiary – Tax Consequences to Subsidiary and Parent (LO. 2)

At the time of its liquidation under § 332, Cardinal Corporation (E & P of $560,000) had the following assets and liabilities: cash ($175,000); marketable securities (fair market value of $230,000, basis of $250,000); unimproved land (fair market value of $600,000, basis of $300,000); unsecured note payable ($50,000); and mortgage on the unimproved land ($270,000). Cardinal also had a net operating loss carryover of $45,000. Wren Corporation acquired all of the stock of Cardinal seven years ago for $160,000.

If an amount is zero, enter “0”.

a. Cardinal Corporation recognizes in the amount of $ on its liquidation under § 337.

b. Wren Corporation recognizes in the amount of $ on the liquidation under § 332.

c. What basis will Wren have in the marketable securities and unimproved land it receives in the liquidation?

Wren Corporation has $ basis for the marketable securities and $ for the unimproved land.

d. What happens to Cardinal’s E & P and net operating loss carryover?

Wren Corporation acquires $of Cardinal Corporation’s E & P and $ of the net operating loss carryover under § 381.

Leave a Comment