A calendar year corporation has Current Earnings & Profits of $100,000. It started the year with an Accumulated E&P deficit of ($750,000). On June 30 it made a distribution of $20,000 to the sole shareholder. The shareholder's basis in the shares prior to the distribution was $25,000. How much, if any income must the shareholder report in gross income?

A calendar year corporation has Current Earnings & Profits of $100,000. It started the year with an Accumulated E&P deficit of ($750,000). On June 30 it made a distribution of $20,000 to the sole shareholder. The shareholder's basis in the shares prior to the distribution was $25,000. How much, if any income must the shareholder report in gross income?

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter19: Corporations: Distributions Not In Complete Liquidation

Section: Chapter Questions

Problem 1BCRQ

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On January 1, year 5, Olinto Corp., an accrual basis, calendar year C corporation, had $35,000 in accumulated earnings and profits. For year 5, Olinto had current earnings and profits of $15,000 and made two $40,000 cash distributions to its shareholders, one in April and one in September of year 5. What amount of the year 5 distributions is classified as dividend income to Olinto’s shareholders? a.$15,000 b.$35,000 c.$50,000 d.$80,000
22) 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 A) dividend income of $0, a tax-free return of capital of $30,000, and capital gain of $45,000. B) dividend income of $40,000, a tax-free return of capital of $30,000, and capital gain of $5,000. C) dividend income of $25,000, a tax-free return of capital of $5,000, and capital gain of $45,000. D) dividend income of $25,000, a tax-free return of capital of $30,000, and capital gain of $20,000.
Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone's earnings and profits at the end of year 1 were $11,560. Marcus is Johnstone's sole shareholder, and he has a stock basis of $46,000 at the end of year 1. Johnstone Corporation Income Statement December 31, Year 2 Year 2 (S Corporation) $ 174,000 ( 41,000) ( 66,000) ( 56,500) (10,000) (4,600) 12,540 Sales r evenue Cost of goods sold Salary to owners Employee wages Depreciation expense Miscellaneous expenses Interest income Overall net income $ 8,440 What is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income does Marcus recognize on the year 2 distribution in each of the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.) a. Johnstone distributed $7,200 to Marcus in year 2. Accumulated adjustments account Dividend income
Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone's earnings and profits at the end of year 1 were $11,560. Marcus is Johnstone's sole shareholder, and he has a stock basis of $46,000 at the end of year 1. Johnstone Corporation Income Statement December 31, Year 2 Year 2 (S Corporation) $ 174,000 ( 41,000) ( 66,000) (56,500) (10,000) ( 4,600) 12,540 $ 8,440 Sales revenue Cost of goods sold Salary to owners Employee wages Depreciation expense Miscellaneous expenses Interest income Overall net income What is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income does Marcus recognize on the year 2 distribution in each of the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.) d. Johnstone distributed $27,200 to Marcus in year 2. Accumulated adjustments account Dividend income