Ball Corporation owns 80% of Net Corporation's stock and Jack owns the remaining 20% of Net Corporation's stock.Ball's basis in the Net stock is $200,000 and Jack's basis in the Net stock is $100,000.Under a plan of complete liquidation,Ball Corporation receives property with an adjusted basis of $400,000 and an FMV of $800,000 and Jack receives property with an adjusted basis of $50,000 and an FMV of $200,000.Ball and Jack's recognized gains on the liquidation are:

Question

Quizplus · Accepted Answer

To determine the recognized gain, we need to compare the FMV of the property received to the basis of the stock surrendered.

For Ball Corporation: 
FMV of property received = $800,000 
Basis of Net Corporation stock surrendered = $200,000

Therefore, Ball has a recognized gain of $600,000 ($800,000 - $200,000).

For Jack: 
FMV of property received = $200,000 
Basis of Net Corporation stock surrendered = $100,000

Therefore, Jack has a recognized gain of $100,000 ($200,000 - $100,000).

The total recognized gain for the liquidation is the sum of Ball and Jack's recognized gains, which is $700,000 ($600,000 + $100,000).

Therefore, the best choice is B.

Ball Corporation Owns 80% of Net Corporation's Stock and Jack