Choice "c" is correct. Absent information to the contrary, we should assume this distribution is in the form of a dividend (especially because Fox is the sole shareholder). If the shareholder is an individual, the taxable amount of a property dividend from a corporation's earnings and profits is the fair market value of the property received (and the property's basis then becomes that fair market value). In this case, the shareholder is also taking on the responsibility for the mortgage on the property, but this affects only the amount of taxable income, as the debt is reported as a separate line item and does not affect the basis of the land. The tax journal entry follows and indicates that the basis of the land is $38,000:

Choice "b" is incorrect. This is the amount of the taxable income on the dividend ($35,000), not the basis in the land, as per the above journal entry.

Choice "d" is incorrect. This amount of $30,000 is the basis of the land on the corporation's books. In a dividend situation, assets are transferred from the corporation using the fair market value of the assets at the date of distribution.

Choice "a" is incorrect. This amount of $27,000 was arrived at by using the basis of the land on the corporation's books ($30,000) and subtracting the mortgage assumed by the shareholder ($3,000). As is discussed in the explanation of the answer for item "a" (above), the fair market value should be used as the basis, and the debt does not have an effect on basis (debt affects taxable income, as shown in the journal entry above).