Exam (elaborations)
TAX 4001 - Chapter 18 Quiz (1)
TAX 4001 - Chapter 18 Quiz (1)
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TAX 4001 - Chapter 18 QuizGrand River Corporation reported taxable income of $550,000 in 20X3 and paid federal
income taxes of $192,500. Not included in the computation was a disallowed meals and
entertainment expense of $3,000, tax-exempt income of $2,000, and deferred gain on a
current year transaction treated as an installment sale of $30,000. The corporation's
current earnings and profits for 20X3 would be: - ANS-$386,500
$550,000 - $192,500 - $3,000 + $2,000 + $30,000 = $386,500.
Bruin Company reports current E&P of $390,000 in 20X3 and accumulated E&P at the
beginning of the year of $195,000. Bruin distributed $590,000 to its sole shareholder on
January 1, 20X3. How much of the distribution is treated as a dividend in 20X3? -
ANS-$585,000
$390,000 + $195,000 = $585,000
Tar Heel Corporation had current and accumulated E&P of $540,000 at December 31
20X3. On December 31, the company made a distribution of land to its sole
shareholder, William Roy. The land's fair market value was $140,000 and its tax and
E&P basis to Tar Heel was $29,000. William assumed a mortgage attached to the land
of $12,000. The tax consequences of the distribution to William in 20X3 would be: -
ANS-Dividend of $128,000 and a tax basis in the land of $140,000.
Catamount Company had current and accumulated E&P of $550,000 at December 31,
20X3. On December 31, the company made a distribution of land to its sole
shareholder, Caroline West. The land's fair market value was $250,000 and its tax and
E&P basis to Catamount was $275,000. The tax consequences of the distribution to
Catamount in 20X3 would be: - ANS-No loss recognized and a reduction in E&P of
$275,000.
El Toro Corporation declared a common stock distribution to all shareholders of record
on June 30, 20X3. Shareholders will receive 1 share of El Toro stock for each 2 shares
of stock they already own. Raoul owns 410 shares of El Toro stock with a tax basis of
$57 per share. The fair market value of the El Toro stock was $97 per share on June 30,
20X3. What are the tax consequences of the stock distribution to Raoul? - ANS-$0
dividend income and a tax basis in the new stock of $38 per share.
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