FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Corporations: Earnings and Profits and Dividend Distributions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Essay

Review LaterAdd Note

Review Later

What is a constructive dividend? Provide several examples of the term.

Correct Answer

verified

Constructive dividends generally occur i...

View Answer

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Brett owns stock in Oriole Corporation basis of $100,000) as an investment. Oriole distributes property fair market value of $375,000; basis of $187,500) to him during the year. Oriole has current E & P of $25,000 which includes the E & P gain on the property distribution) , accumulated E & P of $100,000, and makes no other distributions during the year. What is Brett's capital gain on the distribution?

A) $0
B) $100,000
C) $150,000
D) $187,500
E) None of these.

F) A) and B)
G) All of the above

Correct Answer

verified

Show Answer

Question 3

Essay

Review LaterAdd Note

Goldfinch Corporation distributes stock rights to its shareholders. How is the basis of the stock rights received by Goldfinch's shareholders determined?

How does the definition of accumulated E & P differ from the definition of current E & P?

Gold Corporation has accumulated E & P of $2 million as of January 1 of the current year. During the year, it expects to have earnings from operations of $1,680,000 and to distribute $900,000 in cash to shareholders. Gold Corporation also expects to sell an asset for a loss of $2 million. Thus, it anticipates incurring a deficit of $320,000 for the year. What can Gold do to minimize the amount of dividend income to its shareholders?

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -State income tax paid in the current year.

Stephanie is the sole shareholder and president of Hawk Corporation. She feels that she can justify at least a $220,000 bonus this year because of her performance. However, rather than a bonus in the form of a salary, she plans to have Hawk pay her a $220,000 dividend. Because Stephanie's marginal tax rate is 32%, she prefers to receive a dividend taxed at 15%. Her accountant, however, suggests a $275,000 bonus in lieu of the $220,000 dividend since Hawk Corporation is in the 21% tax bracket. Should Stephanie take the $220,000 dividend or the $275,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Hawk and to Stephanie.

On January 1, Tulip Corporation a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 before considering dividend distributions). During the year, Tulip distributes $600,000 $300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, and Tom's basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?

Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw's current-year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 basis of $400,000) . Payment for one-half of the sale of the asset was made this year. How much of Tracy's distribution will be taxed as a dividend?

Which of the following is not a consequence of the double tax on dividends?

In the current year, Warbler Corporation E & P of $250,000) made the following property distributions to its shareholders all corporations) : $\begin{array}{lrr} &&\text { Fair Market }\\& \text { Adjusted Basis } & \text { Value } \\\text { Pink Corporation stock (held for investment) } & \$ 150,000 & \$ 120,000 \\\text { Non-LIFO inventory } & 80,000 & 110,000\end{array}$ Warbler Corporation is not a member of a controlled group. As a result of the distribution:

On January 1, Eagle Corporation a calendar year taxpayer) has accumulated E & P of $300,000. During the year, Eagle incurs a net loss of $420,000 from operations that accrues ratably. On June 30, Eagle distributes $180,000 to Libby, its sole shareholder, who has a basis in her stock of $112,500. How much of the $180,000 is a dividend to Libby?

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Cash dividends distributed to shareholders in 2019.

Using the legend provided, classify each statement accordingly. In All cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Intangible drilling costs deducted currently.

Stacey and Eva each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer. Cash distributions from Parakeet are $350,000 to Stacey on April 1 and $150,000 to Eva on May 1. If Parakeet's current E & P is $60,000, how much is allocated to Eva's distribution?

Using the legend provided, classify each statement accordingly. In all cases, assume that taxable income is being adjusted to arrive at current E & P for 2019. -Gain on installment sale in 2019 deferred until 2020.

Maria and Christopher each own 50% of Cockatoo Corporation, a calendar year taxpayer. Distributions from Cockatoo are $750,000 to Maria on April 1 and $250,000 to Christopher on May 1. Cockatoo's current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Christopher's distribution?

An increase in the LIFO recapture amount must be added to taxable income to determine E & P.

Certain dividends from foreign corporations can be qualified dividends for purposes of the preferential rate available to individuals.

Briefly describe the rationale for the reduced tax rate on dividends for individual taxpayers.