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Exam 5: Corporations: Earnings Profits and Dividend Distributions

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Question 71

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At the beginning of the current year, Paul and John each own 50% of Apple Corporation. In July, Paul sold his stock to Sarah for $110,000. At the beginning of the year, Apple Corporation had accumulated E & P of $200,000 and its current E & P is $250,000 (prior to any distributions). Apple distributed $260,000 on March 1 ($130,000 to Paul and $130,000 to John) and distributed another $260,000 on October 1 ($130,000 to Sarah and $130,000 to John). What are the tax implications of the $130,000 distribution to Sarah?

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As current E & P is allocated on a pro r...

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Question 72

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In a property distribution, the amount of dividend income recognized by a shareholder is always reduced by the amount of liability assumed by a shareholder.

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B) False

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Question 73

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A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.

The tax treatment of corporate distributions at the shareholder level does not depend on:

On January 2, 2014, 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, 2015, for $290,000. As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:

On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, while Tom's basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?

Which of the following is not a consequence of the double tax on dividends?

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : Warbler Corporation is not a member of a controlled group. As a result of the distribution:

Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2015. Among its transactions for the year are the following: Collection of proceeds from insurance policy on life of corporate officer (in excess of cash surrender value) $ 9,000 Realized gain (not recognized) on an involuntary conversion 10,000 Nondeductible fines and penalties 21,000 Disregarding any provision for Federal income taxes, determine Kite Corporation's current E & P for 2015.

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 2014. a. Increase b. Decrease c. No effect -Section 179 expense in second year following election.