Homework Help is Here – Start Your Trial Now!
Business
Accounting
Alpesh

Alpesh

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Alpesh 

Rex and Felix are the sole shareholders of Dogs and Cats Corporation (DCC). After several years of operations using the accrual method, they decided to liquidate the corporation and operate the business as a partnership. Rex and Felix hired a lawyer to draw up the legal papers to dissolve the corporation, but they need some tax advice from you, their trusted accountant. They are hoping you will find a way for them to liquidate the corporation while minimizing their total income tax liability. Rex has a tax basis in his shares of $60,000 and Felix has a tax basis in his shares of $30,000. DCC's tax accounting balance sheet at the date of liquidation is as follows: Assets Cash Accounts receivable Inventory Equipment Building Land Total assets Liabilities Accounts payable Mortgage payable-Building Mortgage payable-Land Total liabilities Shareholders' Equity Common stock-Rex (80%) Common stock-Felix (20%) Total shareholders equity Assume Rex is a corporate shareholder of DCC. Adjusted tax basis $ 30,000 FMV $ 30,000 10,000 10,000 10,000 20,000 30,000 20,000 15,000 30,000 5,000 40,000 $ 100,000 $ 150,000 $ 5,000 10,000 10,000 $ 25,000 $ 100,000 25,000 $ 125,000 e. Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming each shareholder receives a pro rata distribution of the corporation's assets and assumes a pro rata amount of the liabilities. f. Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives $25,000 in cash and Rex receives the remainder of the assets and assumes all the liabilities. Note: For both requirements, negative amounts should be indicated by a minus sign. Leave no answers blank. Enter zero if applicable. Gain or loss recognized by Rex Gain or loss recognized by Felix Gain or loss recognized by DCC Part E Part F Show less▲
Transcribed Image Text:Rex and Felix are the sole shareholders of Dogs and Cats Corporation (DCC). After several years of operations using the accrual method, they decided to liquidate the corporation and operate the business as a partnership. Rex and Felix hired a lawyer to draw up the legal papers to dissolve the corporation, but they need some tax advice from you, their trusted accountant. They are hoping you will find a way for them to liquidate the corporation while minimizing their total income tax liability. Rex has a tax basis in his shares of $60,000 and Felix has a tax basis in his shares of $30,000. DCC's tax accounting balance sheet at the date of liquidation is as follows: Assets Cash Accounts receivable Inventory Equipment Building Land Total assets Liabilities Accounts payable Mortgage payable-Building Mortgage payable-Land Total liabilities Shareholders' Equity Common stock-Rex (80%) Common stock-Felix (20%) Total shareholders equity Assume Rex is a corporate shareholder of DCC. Adjusted tax basis $ 30,000 FMV $ 30,000 10,000 10,000 10,000 20,000 30,000 20,000 15,000 30,000 5,000 40,000 $ 100,000 $ 150,000 $ 5,000 10,000 10,000 $ 25,000 $ 100,000 25,000 $ 125,000 e. Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming each shareholder receives a pro rata distribution of the corporation's assets and assumes a pro rata amount of the liabilities. f. Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives $25,000 in cash and Rex receives the remainder of the assets and assumes all the liabilities. Note: For both requirements, negative amounts should be indicated by a minus sign. Leave no answers blank. Enter zero if applicable. Gain or loss recognized by Rex Gain or loss recognized by Felix Gain or loss recognized by DCC Part E Part F Show less▲
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS