Question 1

A corporation's E&P is equal to its taxable income for the year.

Accepted Answer

Various adjustments are made to taxable income to derive E&P.

Question 2

Total Corporation has earned $75,000 current E&P and has an accumulated E&P deficit from prior year of $25,000.The corporation pays a $100,000 distribution to shareholders.Shareholders of the corporation have a total stock basis of $40,000.The tax results of the distributions to the shareholders will be

Accepted Answer

A) A distribution is deemed made first out of current E&P, to the extent of current E&P even when there is an accumulated deficit. After current E&P is exhausted, the distribution will come from stock basis if there is an accumulated E&P deficit.

Question 3

Tara transfers land with a $600,000 adjusted basis and a $700,000 FMV to a corporation in a Sec.351 transfer.Immediately after the transfer,Tara owns 100% of the corporation-stock with a FMV of $660,000.In addition,Tara's $40,000 principal balance on her student loan is legally assumed by the corporation as part of the overall transfer.No other property is transferred.Tara's recognized gain on the transfer is

Accepted Answer

B)
 11ea7e84_1f35_222a_9a0a_bdba587e878a_TB1260_00 While debt relief is not normally considered boot under Sec. 351, student loans are personal debt and there is no business purpose to the assumption.

Question 4

A calendar-year corporation has a $75,000 current E&P amount,and a $25,000 positive accumulated E&P balance at the beginning of the year.Shareholders of the corporation have a total basis in outstanding shares of $40,000.The corporation pays a $120,000 distribution to the shareholders.The tax results to the shareholders will be

Accepted Answer

D) A distribution is deemed to be made first out of current E&P and then out of accumulated E&P. Excess distributions result in a tax-free return of capital to the extent of the shareholders' bases.

Question 5

Janice transfers land and a building with a $180,000 adjusted basis and a $200,000 FMV to Optimum Corporation in exchange for 100% of its stock in a transaction qualifying under Sec.351.Shortly before the transfer,Janice obtains a $140,000 mortgage on the property and uses the funds to pay off personal debts.The corporation then assumes the $140,000 mortgage and issues stock worth $60,000.The mortgage assumption lacks business purpose and is intended to place cash in Janice's hands.
a.What is the gain realized by Janice?
b.What is the gain recognized by Janice?
c.What is the basis of the stock received by Janice?
d. What is Optimum's basis in the land and building?

Accepted Answer

The answer of Janice transfers land and a building with...

Question 6

Atlantic Corporation,a calendar-year taxpayer,has $120,000 of accumulated E&P deficit as of January 1.Atlantic's current E&P is $40,000.The corporation makes a $50,000 distribution to its shareholders.Shareholders have stock basis of $60,000.What is the amount of Atlantic's E&P deficit at the end of the year?

Accepted Answer

The answer of Atlantic Corporation,a calendar-year taxpayer,has $120,000 of accumulated...

Question 7

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

Accepted Answer

A) $31,000 - $25,000 = $6,000 distribution in excess of E&P. $10,000 basis - $6,000 excess distribution = $4,000

Question 8

If a corporation has no E&P,a distribution is ordinary income to the extent of the shareholder's basis with any excess treated as capital gain.

Accepted Answer

The distribution is a return of capital to the extent of the shareholder's basis, and the excess is treated as capital gain.

Question 9

A calendar-year corporation has a $15,000 current E&P deficit and a $40,000 positive accumulated E&P balance.The shareholders of the corporation have a total basis in outstanding shares of $30,000.A $75,000 distribution is made to the shareholders on the last day of the year.The tax results to the shareholders will be

Accepted Answer

A) If there is a current E&P deficit and a positive balance in accumulated E&P, both the current and accumulated E&P are netted on the date of the distribution. Thus, $25,000 ($40,000 - $15,000) is dividend income; $30,000 (the basis in the stock) is tax-free return of capital; the remainder or $20,000 is long-term capital gain.

Question 10

Additional capital may be obtained by a corporation by issuing debt securities or equity securities.What advantages result from issuing debt in the capital structure?

Accepted Answer

The answer of Additional capital may be obtained by a...

Question 11

Bob transfers assets with a $100,000 FMV (basis $60,000) and $70,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is Bob's gain recognized on the transfer?

Accepted Answer

B)
 11ea7e84_1f35_493b_9a0a_8bdc11256bf0_TB1260_00

Question 12

Danielle transfers land with a $100,000 FMV (basis $95,000) and $85,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $15,000.The corporation qualifies as a 351 transfer.The corporation assumes the $85,000 mortgage.What is the adjusted basis of the property to the corporation?

Accepted Answer

C) The corporation takes a $95,000 carryover basis in the land.

Question 13

Chi transfers assets with a $150,000 FMV (basis $80,000) and $100,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $50,000.The corporation assumes the $100,000 mortgage.
a.What is the amount of gain recognized by Chi?
b.What is the adjusted basis of the stock received by Chi?
c.What is the basis of the assets to the corporation?

Accepted Answer

The answer of Chi transfers assets with a $150,000 FMV...

Question 14

Individuals Jimmy and Ellen form JE Corporation.Ellen transfers land and a building with a $175,000 adjusted basis and $200,000 FMV in exchange for 50% of the stock of the JE Corporation and a $20,000 note.Jimmy transfers cash of $200,000 for 50% of the stock and a $20,000 note.The transaction meets the terms of Sec.351.The JE stock has a fair market value of $360,000.What is:
(a) the amount of Ellen's gain or loss recognized on the transfer?
(b) the basis of her stock in JE Corporation?
(c) JE Corporation's basis in the land and building (together) transferred by Ellen?

Accepted Answer

The answer of Individuals Jimmy and Ellen form JE Corporation.Ellen...

Question 15

Greg Corporation,an accrual method taxpayer,had accumulated earnings and profits of $300,000 as of December 31 last year.For its current tax year,Greg's books and records reflect the following:

Based on the above,what is the amount of Greg Corporation's current earnings and profits for this year?

Accepted Answer

C)
 11ea7e84_1f35_be73_9a0a_bd1215296d49_TB1260_00

Question 16

John transfers assets with a $200,000 FMV (basis $160,000) and $170,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $130,000.The corporation assumes the $170,000 mortgage.The transfer qualifies under Sec.351.What is the corporation's basis in the property?

Accepted Answer

B)
 11ea7e84_1f35_493c_9a0a_6f5a98cf53a9_TB1260_00 Transferor's basis of $160,000 plus gain recognized from excess debt ($170,000 less $160,000) of $10,000 = $170,000.

Question 17

Nguyen Corporation,a calendar-year corporation,has a $40,000 current E&P deficit and a $60,000 positive accumulated E&P balance.Also assume that shareholders of the corporation have a total basis in outstanding shares of $35,000.A $75,000 distribution is made to the shareholders on the last day of the year.What is the tax treatment of the $75,000 distribution to the shareholders?

Accepted Answer

The answer of Nguyen Corporation,a calendar-year corporation,has a $40,000 current...

Question 18

The books and records of Finton Corporation,an accrual method taxpayer,reflect the following:
  
Based on the above,what is the amount of Greg Corporation's current earnings and profits for this year?

Accepted Answer

The answer of The books and records of Finton Corporation,an...

Question 19

Ron transfers assets with a $100,000 FMV (basis $60,000) and $70,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is the adjusted basis of the stock received?

Accepted Answer

A) The $70,000 of liabilities assumed by the corporation exceed the taxpayer's $60,000 adjusted basis in the property transferred so the taxpayer must recognize $10,000 of gain.
 11ea7e84_1f35_704d_9a0a_efd6f34dd363_TB1260_00

Question 20

A corporation earns $500,000 of current E&P and has an accumulated deficit of $300,000.The corporation pays a $350,000 distribution to its shareholders this year.$200,000 of the distribution will be taxed as a dividend.

Accepted Answer

The full $350,000 distribution is taxed as a dividend because there is at least $350,000 of current E&P.

Quiz 16: Corporations

A corporation's E&P is equal to its taxable income for the year.

Dixie Corporation distributes $31,000 to its sole shareholder,Sally.At the time of the distribution,Dixie's E&P is $25,000 and Sally's basis in her Dixie stock is $10,000.Sally's basis in her Dixie stock after the distribution is

If a corporation has no E&P,a distribution is ordinary income to the extent of the shareholder's basis with any excess treated as capital gain.

Additional capital may be obtained by a corporation by issuing debt securities or equity securities.What advantages result from issuing debt in the capital structure?

Greg Corporation,an accrual method taxpayer,had accumulated earnings and profits of $300,000 as of December 31 last year.For its current tax year,Greg's books and records reflect the following: Based on the above,what is the amount of Greg Corporation's current earnings and profits for this year?

The books and records of Finton Corporation,an accrual method taxpayer,reflect the following: Based on the above,what is the amount of Greg Corporation's current earnings and profits for this year?

A corporation earns $500,000 of current E&P and has an accumulated deficit of $300,000.The corporation pays a $350,000 distribution to its shareholders this year.$200,000 of the distribution will be taxed as a dividend.