McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 20

Rex and Felix are the sole shareholders of the Dogs and Cats Corporation (DCC).After several years of operations, they decided to liquidate the corporation and operate the business as a partnership.Rex and Felix hired a lawyer to draw up the legal papers to dissolve the corporation, but they need some tax advice from you, their trusted accountant.They are hoping you will find a way for them to liquidate the corporation without incurring any corporate-level tax liability.?The DCC's tax accounting balance sheet at the date of liquidation is as follows: a?Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming each shareholder receives a pro rata distribution of the corporation's assets and assumes a pro rata amount of the liabilities.b.Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives $25,000 in cash and Rex receives the remainder of the assets and assumes all of the liabilities.c.Will Felix recognize any income when he collects the accounts receivable?
d.Will Felix be able to take a deduction when he pays the accounts payable?
e?Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming each shareholder receives a pro rata distribution of the corporation's assets and assumes a pro rata amount of the liabilities.f.Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives $25,000 in cash and Rex receives the remainder of the assets and assumes all of the liabilities.g.Would the tax result change if the property was contributed one year ago? Two years ago? Three years ago?