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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. The land is subject to a liability of $30,000.
Which is the total effect of the distribution on the E & P of Balsa?
Expert Solution
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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