FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Rourke Enterprises is owned by Dallas. For the year, Rourke had net income per books of $450,000. This included the following items:
Federal income tax expense $125,000
Rent $50,000
Meals $45,000
Dividends3 $50,000
1 This was calculated using the allowance method. Using specific write-off, this would have been $50,000.
2 Sum-of-the-years-digits method was used for book purposes. Had MACRS been used, depreciation expense would have been $125,000. Had straight-line been used, depreciation would have been $95,000.
3 These dividends were from Mavis, Inc. Jiminy owns 75% of Jepeto.
During the year, Rourke pays Dallas distribution of $500,000. Dallas has a basis of $600,000 in her stock.
- What are the tax consequences of the distribution to Dallas?
- What basis will Dallas take in her stock after the distribution?
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