Rex and Felix are the sole shareholders of Dogs and Cats Corporation $($DCC$).$ After several years of operations using the accrual method, 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 while minimizing their total income tax liability.

Rex has a tax basis in his shares of $$60,000$ and Felix has a tax basis in his shares of $$30,000.$ DCC$\text{'}$s tax accounting balance sheet at the date of liquidation is as follows:

Required:

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 that Felix received cash in lieu of his pro rata share of assets and liabilities.

For parts c and d: Assume Felix received the accounts receivable and equipment and assumed the accounts payable for the following two questions.

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?

For parts e and f: Assume Rex is a corporate shareholder of DCC for the following two questions.

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 the liabilities.