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 $76,000 and Felix has a tax basis in his shares of $46,000 DCC's tax accounting balance sheet at the date of liquidation is as follows Assets Adjusted Basis FMV Cash 46,000 46,000 A R 26,000 26,000 Inventory 26,000 36,000 Equipment 46,000 36,000 Building 31,000 46,000 Land 21,000 56,000 Total Assets 196,000 246,000 Liabilities A P 21,000 Mortgage Building 26,000 Mortgage Land 26,000 Total Liabilities 73,000 Shareholder's Equity C S Rex (80 ) 138,400 C S Felix (20 ) 34,600 total S E 173,000 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 Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives his share in cash and Rex receives the remainder of the assets and assumes all of the liabilities For parts c and d Assume Felix received the accounts receivable and equipment and assumed the accounts payable Will Felix recognize any income when he collects the accounts receivable 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 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 Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives $41,000 in cash and Rex receives the remainder of the assets and assumes all of the liabilities

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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

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 $76,000 and Felix has a tax basis in his shares of $46,000. DCC's tax accounting balance sheet at the date of liquidation is as follows:

Assets: Adjusted Basis FMV

Cash 46,000 46,000

A/R 26,000 26,000

Inventory 26,000 36,000

Equipment 46,000 36,000

Building 31,000 46,000

Land 21,000 56,000

Total Assets 196,000 246,000

Liabilities

A/P 21,000

Mortgage - Building 26,000

Mortgage - Land 26,000

Total Liabilities 73,000

Shareholder's Equity

C/S - Rex (80%) 138,400

C/S - Felix (20%) 34,600

total S/E 173,000

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.
Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives his share in cash and Rex receives the remainder of the assets and assumes all of the liabilities.

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

Will Felix recognize any income when he collects the accounts receivable?
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.

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.
Compute the gain or loss recognized by Rex, Felix, and DCC on a complete liquidation of the corporation assuming Felix receives $41,000 in cash and Rex receives the remainder of the assets and assumes all of the liabilities.