WhaleCo acquired all of the common stock of MinnowCo early in year 1 for $900,000, and MinnowCo immediately elected to join WhaleCos consolidated Federal income tax return. As part of the takeover, WhaleCo also acquired $300,000 of MinnowCo bonds. The results of MinnowCo for the first few years of the group operations were reported as follows.

Tax Year Operating Gain/Loss Stock Basis 1 $100,000 ________

2 (800,000) ________

3 (600,000) ________

a. Determine WhaleCos basis in its MinnowCo common stock as of the end of each tax year.

b. WhaleCo has determined that it will sell all of its MinnowCo stock at the end of year 3 for $250,000. Taking into account the rules regarding excess loss accounts, determine WhaleCos gain/loss from its sale of the MinnowCo stock.