Question 1

A C Corporation distributes land to a shareholder as a dividend. The land has a FMV of $50,000 and is subject to a liability of $60,000 that the shareholder assumes. The corporation's basis in the land is $20,000. What is the gain recognized by the corporation?

Accepted Answer

Corp Distribution Rule: Gain = FMV - Basis. EXCEPTION: If Liability > FMV, treat the Liability amount as the FMV. $60k (Liab) - $20k (Basis) = $40k Gain.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using the actual FMV ($50k) instead of the liability amount.

A C Corporation distributes land to a shareholder as a dividend. The land has a FMV of $50,000 and is subject to a liability of $60,000 that the shareholder assumes. The corporation's basis in the land is $20,000. What is the gain recognized by the corporation?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 4

More questions from this exam