FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 13: Earnings Profits and Distributions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

True/False

Review LaterAdd Note

Review Later

In general, if a shareholder's ownership interest is not diminished as a result of a stock redemption, the Code will treat the transaction as a sale or exchange.

A) True
B) False

Correct Answer

verified

Show Answer

Question 42

True/False

Review LaterAdd Note

Review Later

Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.

A) True
B) False

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : $\begin{array} { l r r } & \text { Adjusted Basis } & \frac { \text { Fair Market } } { \text { Value } } \\\text { Fink Corporation stock (held for investment) } & \$ 150,000 & \$ 120,000 \\\text { Non-LIFO inventory } & 80,000 & 110,000\end{array}$ ? Warbler Corporation is not a member of a controlled group.As a result of the distribution:

Timothy owns 100% of Forsythia Corporation's stock.Corporate employees and annual salaries include Timothy ($300,000); Richard, Timothy's son ($80,000); Rita, Timothy's daughter ($100,000); and Sandy ($120,000).The operation of Forsythia Corporation is shared about equally between Timothy and Sandy (an unrelated party).Richard and Rita are full-time college students at a university about 150 miles away.Forsythia Corporation has substantial E & P but has not distributed a dividend for the past five years.Discuss problems related to the salary arrangement for Forsythia Corporation.

Falcon Corporation ended its first year of operations with taxable income of $250,000.At the time of Falcon's formation, it incurred $50,000 of organizational expenses.In calculating its taxable income for the year, Falcon claimed an $8,000 deduction for the organizational expenses.What is Falcon's current E & P?

A deficit in current E & P is treated as occurring ratably during the year, unless the taxpayer can show otherwise.

On January 1, Eagle Corporation (a calendar year taxpayer) has accumulated E & P of $300,000.During the year, Eagle incurs a net loss of $420,000 from operations that accrues ratably.On June 30, Eagle distributes $180,000 to Libby, its sole shareholder, who has a basis in her stock of $112,500.How much of the $180,000 is a dividend to Libby?

Puffin Corporation makes a property distribution to its sole shareholder, Bonnie.The property distributed is a car (basis of $30,000; fair market value of $20,000) that is subject to a $6,000 liability which Bonnie assumes.Puffin has no accumulated E & P and $30,000 of current E & P from other sources during the year.What is Puffin's E & P after taking into account the distribution of the car?

Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer.Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1.Cockatoo's current E & P is $120,000 and its accumulated E & P is $500,000.What are the tax implications of the distributions to Maria and Christopher?

Which of the following statements is incorrect with respect to determining current E & P?

Tangelo Corporation has an August 31 year-end.Tangelo had $50,000 in accumulated E & P at the beginning of its 2018 fiscal year (September 1, 2017) and during the year, it incurred a $75,000 operating loss.It also distributed $65,000 to its sole shareholder, Cass, on November 30, 2017.If Cass is a calendar year taxpayer, how should she treat the distribution when she files her 2017 income tax return (assuming the return is filed by April 15, 2018) ?

During the year, Blue Corporation distributes land to its sole shareholder.If the fair market value of the land is less than its adjusted basis, Blue will not be able to recognize a loss on the distribution.

Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2018.Among its transactions for the year are the following: $\begin{array}{lr}\text { Collection of proceeds from insurance policy on life of corporate }\\\text { officer (in ex cess of cash surrender value) } & \$ 9,000 \\\text { Realized gain (not recognized) on an involuntary conversion } & 10,000 \\\text { Nondeductible fines and penalties } & 21,000\end{array}$ Disregarding any provision for Federal income taxes, determine Kite Corporation's current E & P for 2018.

Matching Using the legend provided, classify each statement accordingly.In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2017. -Gain realized, but not recognized, in a like-kind exchange transaction in 2017.

Stacey and Andrew each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer.Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1.If Parakeet's current E & P is $60,000, how much is allocated to Andrew's distribution?

Matching Using the legend provided, classify each statement accordingly.In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2017. -Meal and entertainment expenses not deducted in 2017 because of the 50% limitation.

A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.

On January 2, 2017, Orange Corporation purchased equipment for $300,000 with an ADS recovery period of 10 years and a MACRS useful life of 7 years.Section 179 was not elected.MACRS depreciation properly claimed on the asset, including depreciation in the year of sale, totaled $79,605.The equipment was sold on July 1, 2018, for $290,000.As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:

Which one of the following statements about property distributions is false?

Matching Using the legend provided, classify each statement accordingly.In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2017. -Section 179 expense in second year following election.