This year A&S Disposal Corp.distributed land that it had used as a garbage site to its sole shareholder, J.The land was worth $30,000 (basis $10,000) and was subject to a $16,000 mortgage, which J assumed.The corporation had $200,000 of earnings and profits.Ignoring any taxes that may or may not arise on the distribution, the net effect of the distribution on earnings and profits of A&S will cause it to

Question

Quizplus · Accepted Answer

The distribution of the land will cause the earnings and profits of A&S to increase by $6,000. This is because the land had a basis of $10,000 and was worth $30,000, so the corporation realized a gain of $20,000 on the distribution. However, the corporation also had a mortgage of $16,000 on the land, which J assumed. This means that the corporation only received $14,000 in cash from the distribution. Therefore, the net effect of the distribution on earnings and profits is an increase of $6,000 ($20,000 gain - $14,000 cash received).

This Year A&S Disposal Corp