What is Navy’s E & P after taking into account the distribution of the car?

Question
460. 67
In the current year, Verdigris Corporation (with E & P of $250,000) made the following property distributions to its shareholders (all corporations):

Adjusted

Fair Market

Basis

Value

Black Corporation stock (held for investment)

$75,000

$60,000

Non-LIFO inventory

40,000

55,000

Verdigris Corporation is not a member of a controlled group. As a result of the distribution:

a. The shareholders have dividend income of $100,000.
b. The shareholders have dividend income of $130,000.
c. Verdigris has a gain of $15,000 and a loss of $15,000, both of which it must recognize.
d. Verdigris has no recognized gain or loss.
e. None of the above.

461. 68
Swan Corporation makes a property distribution to its sole shareholder, Matthew. The property distributed is a cottage (fair market value of $135,000; basis of $110,000) that is subject to a $175,000 mortgage that Matthew assumes. Before considering the consequences of the distribution, Swan’s current E & P is $25,000 and its accumulated E & P is 100,000. Swan makes no other distributions during the current year. What is Swan’s taxable gain on the distribution of the cottage?

a. $0.
b. $15,000.
c. $25,000.
d. $65,000.
e. None of the above.

462. 69
Navy Corporation makes a property distribution to its sole shareholder, Troy. The property distributed is a car (fair market value of $10,000; basis of $15,000) that is subject to a $2,000 liability which Troy assumes. Navy makes no other distributions during the current year. Navy has no accumulated E & P and $15,000 of current E & P from other sources during the year. What is Navy’s E & P after taking into account the distribution of the car?

a. $2,000.
b. $3,000.
c. $5,000.
d. $7,000.
e. None of the above.

463. 70
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.

464. 71
Which one of the following statements about property distributions is false?

a. When the basis of distributed property is greater than its fair market value, a deficit may be created in E & P.
b. When the basis of distributed property is less than its fair market value, the distributing corporation recognizes gain.
c. When the basis of distributed property is greater than its fair market value, the distributing corporation does not recognize loss.
d. The amount of a distribution received by a shareholder is measured by using the property’s fair market value.
e. All of the above statements are true.

465. 72
Samantha owns stock in Pigeon Corporation (basis of $80,000) as an investment. Pigeon distributes property (fair market value of $300,000; basis of $150,000) to her during the year. Pigeon has current E & P of $20,000 and accumulated E & P of $80,000 and makes no other distributions during the year. What is Samantha’s capital gain on the distribution?

a. $0.
b. $80,000.
c. $120,000.
d. $150,000.
e. None of the above.

466. 73
Blue Corporation distributes property to its sole shareholder, Zeke. The property has a fair market value of $450,000, an adjusted basis of $305,000, and is subject to a liability of $250,000. Current E & P is $550,000. With respect to the distribution, Blue has a gain of:

a. $200,000 and Zeke has dividend income of $450,000.
b. $145,000 and Zeke’s basis is the distributed property is $305,000.
c. $200,000 and Zeke’s basis in the distributed property is $450,000.
d. $145,000 and Zeke has dividend income of $200,000.
e. None of the above.

467. 74
Purple Corporation has accumulated E & P of $100,000 on January 1, 2011. In 2011, Purple has current E & P of $130,000 (before any distribution). On December 31, 2011, the corporation distributes $250,000 to its sole shareholder, Cindy (an individual). Purple Corporation’s E & P as of January 1, 2012 is:

a. $0.
b. ($20,000).
c. $100,000.
d. $130,000.
e. None of the above.

468. 75
Rust Corporation has accumulated E & P of $30,000 on January 1, 2011. In 2011, Rust Corporation had an operating loss of $40,000. It distributed cash of $20,000 to Andre, its sole shareholder, on December 31, 2011. Rust Corporation’s balance in its E & P account as of January 1, 2012, is:

a. $30,000 deficit.
b. $10,000 deficit.
c. $0.
d. $30,000.
e. None of the above.

469. 76
Robin Corporation distributes furniture (basis of $40,000; fair market value of $50,000) as a property dividend to its shareholders. The furniture is subject to a liability of $55,000. Robin Corporation recognizes gain of:

a. $55,000.
b. $15,000.
c. $10,000.
d. $0.
e. None of the above.

470. 77
Ten years ago, Connie purchased 4,000 shares in Platinum Corporation for $40,000. In the current year, Connie receives a nontaxable stock dividend of 40 shares of Platinum preferred. Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common. Based on this information, Connie’s basis is:

a. $40,000 in the common and $16,000 in the preferred.
b. $4,000 in the common and $136,000 in the preferred.
c. $36,000 in the common and $4,000 in the preferred.
d. $39,600 in the common and $400 in the preferred.
e. None of the above.

471. 78
Which of the following statements regarding constructive dividends is not correct?

a. Constructive dividends do not need to be formally declared or designated as a dividend.
b. Constructive dividends need not be paid pro rata to the shareholders.
c. Corporations that receive constructive dividends may not use the dividends received deduction.
d. Constructive dividends are taxable as dividends only to the extent of earnings and profits.
e. All of the above.

472. 79
Pink Corporation declares a nontaxable dividend payable in rights to subscribe to common stock. Each right entitles the holder to purchase one share of stock for $25. One right is issued for every two shares of stock owned. Jack owns 100 shares of stock in Pink, which he purchased three years ago for $3,000. At the time of the distribution, the value of the stock is $45 per share and the value of the rights is $2 per share. Jack receives 50 rights. He exercises 25 rights and sells the remaining 25 rights three months later for $2.50 per right.

a. Jack must allocate a part of the basis of his original stock in Pink to the rights.
b. If Jack does not allocate a part of the basis of his original stock to the rights, his basis in the new stock is zero.
c. Sale of the rights produces ordinary income to Jack of $62.50.
d. If Jack does not allocate a part of the basis of his original stock to the rights, his basis in the new stock is $625.
e. None of the above.

473. 80
Jose receives a nontaxable distribution of stock rights during the year from Gold Corporation on January 30. Each right entitles the holder to purchase one share of stock for $50. One right is issued for every share of stock owned. Jose owns 100 shares of stock purchased two years ago for $5,000. At the date of distribution, the rights are worth $1,000 (100 rights at $10 per right) and Jose’s stock in Gold is worth $6,000 (or $60 per share). On December 1, Jose sells all stock rights for $13 per right. How much gain does Jose recognize on the sale?

a. $1,300.
b. $586.
c. $500.
d. $0.


 

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