Pebble Corporation,an accrual basis taxpayer,has struggled to survive since its formation,six years ago.As a result,it has a deficit in accumulated E & P at the beginning of the year of $340,000.This year,however,Pebble earned a significant profit; taxable income was $240,000.Consequently,Pebble made two cash distributions to Martha,its sole shareholder: $150,000 on July 1 and $200,000 December 31.The following information might be relevant to determining the tax treatment of the distributions.

a.Compute Pebble's E & P for the year.
b.What are the tax consequences of the two distributions made during the year to Martha (her stock basis is $74,000)?

Question

Pebble Corporation,an accrual basis taxpayer,has struggled to survive since its formation,six years ago.As a result,it has a deficit in accumulated E & P at the beginning of the year of $340,000.This year,however,Pebble earned a significant profit; taxable income was $240,000.Consequently,Pebble made two cash distributions to Martha,its sole shareholder: $150,000 on July 1 and $200,000 December 31.The following information might be relevant to determining the tax treatment of the distributions.
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a.Compute Pebble's E & P for the year.
b.​What are the tax consequences of the two distributions made during the year to Martha (her stock basis is $74,000)?

Quizplus · Accepted Answer

The Answer of Pebble Corporation,an accrual basis taxpayer,has struggled to survive since its formation,six years ago.As a result,it has a deficit in accumulated E & P at the beginning of the year of $340,000.This year,however,Pebble earned a significant profit; taxable income was $240,000.Consequently,Pebble made two cash distributions to Martha,its sole shareholder: $150,000 on July 1 and $200,000 December 31.The following information might be relevant to determining the tax treatment of the distributions.
​
  
a.Compute Pebble's E & P for the year.
b.​What are the tax consequences of the two distributions made during the year to Martha (her stock basis is $74,000)?

Pebble Corporation,an Accrual Basis Taxpayer,has Struggled to Survive Since Its