Question;434.41;The tax treatment of corporate distributions at the shareholder level does not;depend on;a.;The character of the property being distributed.;b. The earnings and profits of the;corporation.;c. The basis of stock in the hands of;the shareholder.;d. Whether the distributed property is;received by an individual or a corporation.;e. None of the above.;435.42;Scarlet Corporation (a calendar year taxpayer) has taxable income of $150,000;and its financial records reflect the following for the year.;Federal income taxes paid;$55,000;Net operating loss carryforward deducted currently;35,000;Gain recognized this year on an installment sale;from a prior year;22,000;Depreciation deducted on tax return (ADS;depreciation would have been $5,000);20,000;Interest income on Iowa state bonds;4,000;Scarlet Corporation?s current E & P is;a.;$127,000.;b. $107,000.;c. $97,000.;d. $57,000.;e. None of the above.;436.43;Blue Corporation, a cash basis taxpayer, has taxable income of $700,000 for the;current year. Blue elected $80,000 of ? 179 expense. It also had a related;party loss of $30,000 and a realized (not recognized) gain from an involuntary;conversion of $85,000. It paid Federal income tax of $185,000 and a;nondeductible fine of $20,000. Blue?s current E & P is;a.;$465,000.;b. $529,000.;c. $614,000.;d. $630,000.;e. None of the above.;437.44;Platinum Corporation, a calendar year taxpayer, has taxable income of $500,000.;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);$75,000;Realized gain (not recognized) on an involuntary;conversion;10,000;Nondeductible fines and penalties;40,000;Disregarding any provision for Federal income taxes, Platinum Corporation?s;current E & P is;a.;$455,000.;b. $535,000.;c. $545,000.;d. $625,000.;e. None of the above.;438.45;Which of the following statements is incorrect;with respect to determining current E & P?;a.;All tax-exempt income should be added back to taxable income.;b. Dividends received deductions should;be added back to taxable income.;c. Charitable contributions in excess of;the 10% of taxable income limit should be subtracted from taxable income.;d. Federal income tax refunds should be;added back to taxable income.;e. None of the above statements are;incorrect.;439.46;Ashley and Andrew, equal shareholders in Parrot Corporation, receive $250,000;each in distributions on December 31 of the current year. During the current year;Parrot 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, Parrot?s current year E & P is $400,000 and it;has no accumulated E & P. How much of Ashley?s distribution will be taxed;as a dividend?;a.;$0.;b. $200,000.;c. $250,000.;d. $425,000.;e. None of the above.;440.47;Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each;in distributions on December 31 of the current year. Macaw?s current year;taxable income is $1 million and it has no accumulated E & P. Last year;Macaw sold an appreciated asset for $1,200,000 (basis of $400,000). Payment for;one-half of the sale of the asset was made this year. How much of Tracy?s;distribution will be taxed as a dividend?;a.;$0.;b. $300,000.;c. $500,000.;d. $600,000.;e. None of the above.;441.48;Pheasant Corporation ended its first year of operations with taxable income of;$225,000. At the time of Pheasant?s formation, it incurred $50,000 of;organizational expenses. In calculating its taxable income for the year;Pheasant claimed an $8,000 deduction for the organizational expenses. What is;Pheasant?s current E & P?;a.;$175,000.;b. $183,000.;c. $225,000.;d. $233,000.;e. None of the above.;442.49;During the current year, Goose Corporation sold equipment for $500,000;(adjusted basis of $260,000). The equipment was purchased a few years ago for;$560,000 and $300,000 in MACRS deductions have been claimed. ADS depreciation;would have been $200,000. As a result of the sale, the adjustment to taxable;income needed to determine current E & P is;a.;No adjustment is required.;b. Subtract $100,000.;c. Add $100,000.;d. Add $80,000.;e. None of the above.;443.50;On January 2, 2011, 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, 2012, for $290,000. As a result of the sale, the adjustment to taxable;income needed to arrive at current E & P is;a.;No adjustment is required.;b. Decrease $49,605.;c. Increase $49,605.;d. Decrease $79,605.;e. None of the above.;444.51;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.;445.52;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.;446.53;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.;447.54;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.;448.55;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.;449.56;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.;450.57;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.;451.58;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.;452.59;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.;453.60;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.;454.61;As of January 1, Warbler Corporation has a deficit in accumulated E & P of;$150,000. For the year, current E & P (accrued ratably) is $260,000 (prior;to any distributions). On July 1, Warbler Corporation distributes $295,000 to;its sole shareholder. The amount of the distribution that is a dividend is;a.;$10,000.;b. $110,000.;c. $260,000.;d. $295,000.;e. None of the above.;455.62;At the beginning of the current year, Doug and Alfred each own 50% of Amaryllis;Corporation (a calendar year taxpayer). In July, Doug sold his stock to Kevin;for $140,000. At the beginning of the year, Amaryllis Corporation had;accumulated E & P of $240,000 and its current E & P is $280,000 (prior;to any distributions). Amaryllis distributed $300,000 on February 15 ($150,000;to Doug and $150,000 to Alfred) and distributed another $300,000 on November 1;($150,000 to Kevin and $150,000 to Alfred). Kevin has dividend income of;a.;$150,000.;b. $140,000.;c. $110,000.;d. $70,000.;e. None of the above.;456.63;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?;a.;$0.;b. $60,000.;c. $75,000.;d. $120,000.;e. None of the above.;457.64;Which of the following is not an economic distortion created by the double tax;on dividends?;a.;An incentive to invest in noncorporate rather than corporate businesses.;b. An incentive for corporations to;finance operations with debt rather than equity.;c. An incentive to invest domestically;rather than internationally.;d. An incentive for corporations to;retain earnings and structure distributions to avoid dividend treatment.;e. All of the above represent economic;distortions created by the double tax on dividends.;458.65;Which one of the following statements is false?;a.;Most countries that trade with the U.S. do not impose a double tax on;dividends.;b. Tax proposals that include corporate;integration would eliminate the double tax on dividends.;c. The double tax on dividends may make;corporations more financially vulnerable during economic downturns.;d. Many of the arguments in support of;the double tax on dividends relate to fairness.;e. None of the above.;459.66;In June of the current year, Marigold Corporation declares a $4 dividend out of;E & P on each share of common stock to shareholders of record on August 1.;Ellen and Tim each purchase 100 shares of Marigold stock on July 1. On July 15;Ellen also purchases a short position in Marigold. Tim sells 50 of his shares;on August 10 and continues to hold the remaining 50 shares through the end of;the year. Ellen closes her short position in Marigold on October 15. With;respect to the dividends, which of the following is correct?;a.;Ellen will have $400 of qualifying dividends subject to reduced tax rates and;$400 of ordinary income (from dividends paid on the short position of Marigold;stock).;b. Tim will have $200 of qualifying;dividends subject to reduced tax rates and $200 of ordinary income.;c. All $800 of Ellen?s dividends will;qualify for reduced tax rates.;d. All $400 of Tim?s dividends will;qualify for reduced tax rates.;e. None of the above.
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