The corporation has claimed depreciation of $160,000 on the equipment. The corporation received the marketable securitie

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The Corporation Has Claimed Depreciation Of 160 000 On The Equipment The Corporation Received The Marketable Securitie 1 (14.92 KiB) Viewed 44 times

The corporation has claimed depreciation of $160,000 on the equipment. The corporation received the marketable securities as a capital contribution from Paula three years earlier at a time when their adjusted basis was $100,000 and their FMV was $92,000. Epsilon incurred $29,000 in liquidation expenses in its final tax year.
Cash Assets Marketable securities Equipment Land Total Equity Common stock Retained earnings (and E&P) Total Basis $ 270,000 100,000 160,000 270,000 $ 800,000 $ 200,000 600,000 800,000 FMV 270,000 96,000 230,000 610,000 $ 1,206,000 $ 1,206,000 $ 1,206,000
Paula owns 100% of Epsilon Corporation's stock. She purchased her stock ten years ago, and her current basis for the stock is $200,000. On June 10, Paula decided to liquidate Epsilon. Epsilon's balance sheet prior to the sale of the assets, payment of the liquidation expenses, and payment of federal income taxes, as well as some additional information is as follows: (Click the icon to view the balance sheet.) i (Click the icon to view the additional information.) Read the requirements. Requirement a. What are the tax consequences of the liquidation to Paula and Epsilon Corporation? Assume a 21% corporate tax rate. Let's begin by determining the tax consequences for Epsilon. Start by computing Epsilon's recognized gain or loss on each of the assets distributed to Paula (and in total) as a result of the liquidation. (Complete all input fields. Enter a "0" in the "Recognized gain (loss)" column, and enter "N/A" in the "Character of gain or loss" column if no gain or loss is recognized by Epsilon.) Cash Marketable securities Equipment Land Assets Total $ Recognized Basis FMV gain (loss) $ 270,000 $ 270,000 $ 100,000 160,000 96,000 230,000 70,000 340,000 270,000 610,000 $ 800,000 $1,206,000 $ 410,000 Net cash 160,990 $ Complete the calculation below to show Epsilon's tax liability as a result of the liquidation. Assume a 21% corporate tax rate. Taxable income $ 381,000 Times: Tax rate Tax liability Next, determine the amount and character of the gain or loss for Paula. Select the correct formula labels, enter the amounts, and select the character of the gain or loss to Paula. (Abbreviations used: BV = book value; FMV = fair market value; Liq. Exp = liquidation expenses.) 21% 80,010 0 0 + FMV of noncash assets + $ 936,000 Character of gain or loss N/A N/A ordinary income capital gain C Basis of stock 200,000 = Amount and character of gain or loss = $ 896,990 Long-term capital gain