444. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB51 Tungsten Corporation a calendar year cash basis taxpayer made estimated tax payments of $800 each quarter in 2011 for a total of $3 200. Tungsten filed its 2011 tax return in 2012 and the return showed a tax liability $4 200. At the time of filing March 15 2012 Tungsten paid an additional $1 000 in Federal income taxes. How does the additional payment of $1 000 impact Tungsten’s E & P? a. Increase by $1 000 in 2011. b. Increase by $1 000 in 2012. c. Decrease by $1 000 in 2011. d. Decrease by $1 000 in 2012. e. None of the above. 445. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB52 Duck Corporation is a calendar year taxpayer formed in 2005. Duck’s E & P for each of the past 5 years is listed below. 2010 $280 000 2009 $400 000 2008 $390 000 2007 $680 000 2006 $160 000 Duck Corporation made the following distributions in the previous 5 years. 2009 Land (basis of $700 000 fair market value of $800 000) 2006 $200 000 cash Duck’s accumulated E & P as of January 1 2011 is: a. $910 000. b. $950 000. c. $1 010 000. d. $1 050 000. e. None of the above. 446. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB53 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? a. $5 000. b. $10 000. c. $18 000. d. $30 000. e. None of the above. 447. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB54 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? a. $0. b. $75 000. c. $150 000. d. $300 000. e. None of the above. 448. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB55 Gander a calendar year corporation has a deficit in current E & P of $100 000 and a $290 000 positive balance in accumulated E & P. If Gander determines that a $500 000 distribution to its shareholders is appropriate at some point during the year what is the maximum amount of the distribution that could potentially be treated as a dividend? a. $0. b. $190 000. c. $240 000. d. $290 000. e. None of the above. 449. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB56 Falcon Corporation has $200 000 of current E & P and a deficit in accumulated E & P of $90 000. If Swan pays a $300 000 distribution to its shareholders on July 1 how much dividend income do the shareholders report? a. $0. b. $10 000. c. $110 000. d. $200 000. e. None of the above. 450. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB57 Glenda is the sole shareholder of Condor Corporation. She sold her stock to Melissa on October 31 for $150 000. Glenda’s basis in Condor stock was $50 000 at the start of the year. Condor distributed land to Glenda immediately before the sale. Condor’s basis in the land was $20 000 (fair market value of $25 000). On December 31 Melissa received a $75 000 cash distribution from Condor. During the year Condor has $20 000 of current E & P and its accumulated E & P balance on January 1 is $10 000. Which of the following statements is true? a. Glenda recognizes a $110 000 gain on the sale of her stock. b. Glenda recognizes a $100 000 gain on the sale of her stock. c. Melissa receives $5 000 of dividend income. d. Glenda receives $20 000 of dividend income. e. None of the above. 451. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB58 Orange Corporation has a deficit in accumulated E & P of $600 000 and has current E & P of $450 000. On July 1 Orange distributes $500 000 to its sole shareholder Morris who has a basis in his stock of $105 000. As a result of the distribution Morris has: a. Dividend income of $450 000 and reduces his stock basis to $55 000. b. Dividend income of $105 000 and reduces his stock basis to zero. c. Dividend income of $450 000 and no adjustment to stock basis. d. No dividend income reduces his stock basis to zero and has a capital gain of $500 000. e. None of the above. 452. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB59 Renee the sole shareholder of Indigo Corporation sold her stock to Chad on July 1 for $180 000. Renee’s stock basis at the beginning of the year was $120 000. Indigo made a $60 000 cash distribution to Renee immediately before the sale while Chad received a $120 000 cash distribution from Indigo on November 1. As of the beginning of the current year Indigo had $26 000 in accumulated E & P while current E & P (before distributions) was $90 000. Which of the following statements is correct? a. Renee recognizes a $60 000 gain on the sale of the stock. b. Renee recognizes a $64 000 gain on the sale of the stock. c. Chad recognizes dividend income of $120 000. d. Chad recognizes dividend income of $30 000. e. None of the above. 453. CHAPTER 5—CORPORATIONS: EARNINGS PROFITS AND DIVIDEND DISTRIB60 Tangelo Corporation has an August 31 year-end. Tangelo had $50 000 in accumulated E & P at the beginning of its 2012 fiscal year (September 1 2011) and during the year it incurred a $75 000 operating loss. It also distributed $65 000 to its sole shareholder Cass on November 30 2011. If Cass is a calendar year taxpayer how should she treat the distribution when she files her 2011 income tax return (assuming the return is filed by April 15 2012)? a. $65 000 of dividend income. b. $60 000 of dividend income and $5 000 recovery of capital. c. $50 000 of dividend income and $15 000 recovery of capital. d. The distribution has no effect on Cass in the current year. e. None of the above.
