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Homework answers / question archive / Balsa Corporation distributes land with a fair market value of $75,000 and an adjusted basis of $25,000

Balsa Corporation distributes land with a fair market value of $75,000 and an adjusted basis of $25,000

Business

Balsa Corporation distributes land with a fair market value of $75,000 and an adjusted basis of $25,000. The land is subject to a liability of $30,000.

Which is the total effect of the distribution on the E & P of Balsa?

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The gain of Balsa E & P = Fair market value - Adjusted basis of property

= $75,000 - $25,000

= $50,000

The loss of Balsa E & P = Fair market value - Liability

= $75,000 - $30,000

= $45,000

The net effect of this transaction on Balsa's E & P = (The gain of Balsa E & P - The loss of Balsa E & P)

= ($50,000 - $45,000)

= $5,000

The net effect of this transaction on Balsa's E & P is a $5,000 increase in E & P

 

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