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. DCCs tax accounting balance sheet at the date of liquidation is as follows:

	Adjusted Basis			FMV
Assets
Cash	$	50,000		$	50,000
Accounts receivable		30,000			30,000
Inventory		30,000			60,000
Equipment		60,000			40,000
Building		30,000			60,000
Land		9,000			69,000
Total assets	$	209,000		$	309,000
Liabilities
Accounts payable				$	94,000
Mortgage payableBuilding					45,000
Mortgage payableLand					45,000
Total liabilities				$	184,000
Shareholders Equity
Common stockRex (80%)				$	100,000
Common stockFelix (20%)					25,000
Total shareholders equity				$	125,000

Required:

1. 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 corporations assets and assumes a pro rata amount of the liabilities.
2. Compute the gain or loss recognized by DCC, Rex, and Felix on a complete liquidation of the corporation assuming that Felix received cash in lieu of his pro rata share of assets and liabilities.

	Part A	Part B
Gain or loss recognized by Rex
Gain or loss recognized by Felix
Gain or loss recognized by DCC