The stock of Mulberry Corporation is owned by Archana (60%) and Anar (40%), who are mother and daughter. Pursuant to a plan of complete liquidation adopted earlier in the current year, Mulberry distributes land worth $1,364,000 to Anar (basis of $218,240 in Mulberry stock). The land was purchased by Mulberry Corporation three years ago for $1,773,200, and it is distributed subject to a liability of $1,091,200.

What amount of gain or loss is recognized by Mulberry Corporation and by Anar with respect to the distribution of the land?

There is loss of $109,120

Explanation:

Lossrecognized=Marketvalue−Purchasevalue

=$1773200-1364000

Therefore, loss recognized by “M” Corporation is $409,200

Determine the gain or loss of A:

LossbyA=Purchasevalue−Liability−ActualbasisofM

=[($1364000-$1091200)×40%]−$218240

=$109120−$218240

=($109,120)  loss

We have a loss of $109,120

Explanation:

Based on the scenario

Our variables are as follows,

market value =$1,773,200

Purchased value = $1,364,000

To calculate the loss been recognized is seen below

Loss recognized = Market value − Purchase value

Which we have has

=$1,773,200-1,364,000

=$409,200

The loss been recognized by Mulbery Corporation is $409,200

Also, let's determine the loss or gain of Anar corporation

Purchased value = $1,364,000

Liability = $1,091,200

actual basis of Mulberr stock = $218,240

We can calculate it using these method

Loss by Anar =Purchase value − Liability − Actual basis of Mulberry stock

Substituting the values, we have

=[(1364000 - 1091200)×40%]−$218240

=$109120−$218240

=$109,120

We have a loss of $109,120

the third answer is correct.