Sarah owns Gonzalez Corporation, a Corporation. Sarah’s basis for his Gonzalez stock is $120,000. The corporation’s...

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?

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Expert Solution

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

ekkarill92 answered 10 months ago

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