Question

Sarah owns Gonzalez Corporation, a Corporation. Sarah’s basis for his Gonzalez stock is $120,000. The corporation’s assets are summarized below. In addition, Gonzalez Corporation owes creditors $80,000

Assets	Adjusted Basis	Fair Market Values
Cash	$90,000	$90,000
Cain Corporation Stock	100,000	225,000
Other Equipment	140,000	300,000

Gonzalez Corporation sells the equipment for $300,000 to an unrelated purchaser. Gonzalez then liquidates paying all creditors and any outstanding tax obligations first. Assume a 34% tax rate for Gonzalez. Analyze this transaction. What is the impact to Sarah and Gonzalez Corporation?

Answer 1

Assets	Fair Market Value	Sale of equipement	Payment to creditor	Net Assets
	A	B	C	D = A+B+C
Cash	$        90,000	$      3,00,000	$           -80,000	$       3,10,000
Cain Corporation Stock	$    2,25,000	$                   -	$                      -	$       2,25,000
Other Equipment	$    3,00,000	$    -3,00,000	$                      -	$                    -
Creditors	$      -80,000	$                   -	$            80,000	$                    -
			Gross Proceeds	$       5,35,000
			Tax @ 34%	$       1,81,900
			Proceeds after tax	$       3,53,100
			Gonzalez stock value	$       1,20,000
			Profit	$       2,33,100