A tract of land was distributed by MNO Inc. to its sole shareholder, Martha, as a dividend. At the time of the distribution, MNO Inc.s adjusted basis in the land was $40,000, the fair market value of the land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of the following statements is true?

Group of answer choices

The net adjustment to MNO Inc.s earnings and profits is a decrease of $15,000.

The net adjustment to MNO Inc.s earnings and profits is an increase of $40,000, (that is, equal to the amount of gain realized by the corporation).

The corporations realized gain of $40,000 is recognized to the extent of the $15,000, (the excess of the liability over adjusted basis in the land).

The shareholders basis in the land distributed by the corporation to the shareholder is $80,000, (which is the fair market value of the land).