[jdl]

Hi everyone- can someone show me the journal entry for the below problem from the Corporation perspective? I know the shareholder perspective receiving the property is the following. Thanks for the help- fellow CPA’s! :

Asset 38000

Liability 3000
Gain 35000

Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox’s tax basis in the land?
a.
$35,000
b.
$27,000
c.
$30,000
d.
$38,000

Explanation

[AGI]

when you trade land it's always fair market value in a company, at least IRS only cares about its FMV.

Company:
Land = 35
Less: Release of Mortgage Obligation = (-3)
Tax Basis = 38

New York - NYC
Passed CPA Exam (11/2014)
In search for a position in NYC that will fulfills the license requirement.

[jdl]

Thanks- is there a way to show in a journal entry as in below? I'm trying to see what gain the corporation recognizes/ what other acct is cleared.

XX
Liability 3000
Land 30,000
Gain XX

[AGI]

I just noticed I wrote the top wrong. Why did I wrote land as 35? The tax basis is correct thou – at 38.

—–
Distribution to Owner 38000
Cash 38000

Cash 38000
Liability 3000
Land 30000
Gain on Sale 11000

New York - NYC
Passed CPA Exam (11/2014)
In search for a position in NYC that will fulfills the license requirement.

[Author]

Replies