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Exam 5: Corporations: Earnings Profits and Dividend Distributions

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Question 21

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Pelican Corporation has E & P of $260,000.It distributes land with a fair market value of $80,000 (adjusted basis of $30,000) to its sole shareholder,Bernard.The land is subject to a liability of $45,000 that Bernard assumes.Bernard has a taxable dividend of:

A) $10,000.
B) $35,000.
C) $55,000.
D) $80,000.
E) None of the above.

F) A) and B)
G) B) and D)

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Question 22

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A realized gain from a like-kind exchange under § 1031 that is not recognized for income tax purposes has no effect on E & P.

A) True
B) False

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Question 23

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On January 1,Gull Corporation (a calendar year taxpayer) has accumulated E & P of $200,000.During the year,Gull incurs a net loss of $280,000 from operations that accrues ratably.On June 30,Gull distributes $120,000 to Sharon,its sole shareholder,who has a basis in her stock of $75,000.How much of the $120,000 is a dividend to Sharon?

Wendy and David,equal shareholders in Loon Corporation,receive $300,000 each in distributions on December 31 of the current year.Loon's current year E & P is $500,000 and it has no accumulated E & P.Last year,Loon sold an appreciated asset for $600,000 (basis of $200,000) .Payment for one half of the sale of the asset was made this year.How much of Wendy's distribution will be taxed as a dividend?

Red Corporation,a calendar year taxpayer,has taxable income of $600,000.Among its transactions for the year are the following: Disregarding any provision for Federal income taxes,Red Corporation's current E & P is:

Goose Corporation makes a property distribution to its sole shareholder,Michael.The property distributed is a hunting cabin (fair market value of $270,000;basis of $220,000) that is subject to a $350,000 mortgage which Michael assumes.Before considering the consequences of the distribution,Goose's current E & P is $50,000 and its accumulated E & P is 200,000.Goose makes no other distributions during the current year.What is Goose's taxable gain on the distribution of the cabin?

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

Tracy and Lance,equal shareholders in Macaw Corporation,receive $250,000 each in distributions on December 31 of the current year.During the current year,Macaw sold an appreciated asset for $500,000 (basis of $150,000) .Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year,with interest payable at a rate of 7.5%.Before considering the effect of the asset sale,Macaw's current year E & P is $400,000 and it has no accumulated E & P.How much of Tracy's distribution will be taxed as a dividend?

Yellow Corporation has a deficit in accumulated E & P of $600,000 and has current E & P of $450,000.On July 1,Yellow distributes $500,000 to its sole shareholder,Eugene,who has a basis in his stock of $105,000.As a result of the distribution,Eugene has:

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

Regardless of any deficit in accumulated E & P,distributions during the year are treated as dividends to the extent of current E & P.

Dividends from foreign corporations are not qualified dividends.

Mallard Corporation is a calendar year taxpayer formed in 2005.Mallard's E & P for each of the past 5 years is listed below. 2009 $140,000 2008 $200,000 2007 $195,000 2006 $340,000 2005 $ 80,000 Mallard Corporation made the following distributions in the previous 5 years. 2008 Land (basis of $350,000,fair market value of $400,000) 2005 $100,000 cash Mallard's accumulated E & P as of January 1,2010 is:

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

Maria and Christopher each own 50% of Cockatoo Corporation,a calendar year taxpayer.Distributions from Cockatoo are: $750,000 to Maria on April 1 and $250,000 to Christopher on May 1.Cockatoo's current E & P is $300,000 and its accumulated E & P is $600,000.How much of the accumulated E & P is allocated to Christopher's distribution?

The terms "earnings and profits" and "retained earnings" are identical in meaning.

To determine E & P,some (but not all)previously excluded income items are added back to taxable income.

Which one of the following statements is false?

Honeysuckle Corporation is wholly owned by Tabatha.Corporate employees and annual salaries include Tabatha ($300,000);Ryan,Tabatha's son ($80,000);Regina,Tabatha's daughter ($100,000);and Quincy ($120,000).The operation of Honeysuckle Corporation is shared about equally between Tabatha and Quincy (an unrelated party).Ryan and Regina are full-time college students at a university about 100 miles away.Honeysuckle Corporation has substantial E & P but has not distributed a dividend for the past three years.Discuss problems related to the salary arrangement for Honeysuckle Corporation.

When current E & P is positive and accumulated E & P has a deficit balance,the two accounts are netted for dividend determination purposes.