A tract of land was distributed by WESTO Inc. to its sole shareholder, Steve, as a dividend. At the time of the distribution, WESTO 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. WESTO Inc.'s earnings and profits must be increased by $40,000
b. the amount of the unrecognized gain, and decreased by $40,000 (the adjusted basis of the land),
c. increased by $55,000 (the amount of the liability).
b. None of the above statements is accurate.