The stock in Lark Corporation is owned equally by Olaf and his son Pete.In a liquidation of the corporation,Lark Corporation distributes to Olaf land that it had purchased three years ago for $550,000.The property has a fair market value on the date of distribution of $400,000.Later,Olaf sells the land for $420,000.What loss will Lark Corporation recognize with respect to the distribution of the land?
A)$0.
B)$20,000.
C)$130,000.
D)$150,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Lark Corporation will not recognize any loss since the land distributed had appreciated in value since it was purchased. The fair market value of $400,000 is less than the cost basis of $550,000, so there would be a loss for Olaf if he sold it immediately, but Lark Corporation does not recognize losses or gains on distributions of property to shareholders in a liquidation. Therefore, the answer is A) $0.

The Stock in Lark Corporation Is Owned Equally by Olaf