Problem on amount of the unrecognized gain


A tract of land was distributed by MNO Inc. to its sole shareholder, Martha, as a dividend. At the time of the distribution, MNO Inc.'s adjusted basis in the land was $40,000, the fair market value of the land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of the following statements is accurate?

a. MNO Inc.'s earnings and profits must be increased by $40,000 , the amount of the unrecognized gain, and decreased by $40,000 (the adjusted basis of the land), and increased by $55,000 (the amount of the liability).

b. The net adjustment to MNO Inc's earnings and profits is $40,000, the amount of the recognized gain.

c. The distributing corporation's realized gain of $40,000 is recognized to the extent of the $15,000.

d. None of the above statements is accurate.

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Accounting Basics: Problem on amount of the unrecognized gain
Reference No:- TGS038540

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