Question 1

How does the payment of a property dividend affect E & P?

Accepted Answer

Corporate distributions reduce E & P by

Question 2

Finch Corporation (E & P of $400,000) distributed machinery ($10,000 adjusted basis, $150,000 fair market value) to its sole shareholder, Kathleen. The property is subject to a $50,000 mortgage, which Kathleen assumed. How much dividend income does Kathleen recognize as a result of the distribution and what is her basis in the machinery?

Accepted Answer

As a result of the distribution, Kathlee

Question 3

Which one of the following statements about property distributions is false?

Accepted Answer

A)  When the basis of distributed property is greater than its fair market value, a deficit may be created in E & P. 
B)  When the basis of distributed property is less than its fair market value, the distributing corporation recognizes gain. 
C)  When the basis of distributed property is greater than its fair market value, the distributing corporation does not recognize loss. 
D)  The amount of a distribution received by a shareholder is measured by using the property's fair market value. 
E)  All of the above statements are true. 
A)  When the basis of distributed property is greater than its fair market value, a deficit may be created in E & P. 
B)  When the basis of distributed property is less than its fair market value, the distributing corporation recognizes gain. 
C)  When the basis of distributed property is greater than its fair market value, the distributing corporation does not recognize loss. 
D)  The amount of a distribution received by a shareholder is measured by using the property's fair market value. 
E)  All of the above statements are true.

Question 4

A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.

Accepted Answer

A) True 
 B)False

Question 5

Rust Corporation distributes property to its sole shareholder, Andre. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E & P is $500,000. With respect to the distribution, which of the following statements is correct?

Accepted Answer

A)  Rust has a gain of $15,000 and Andre has dividend income of $350,000. 
B)  Rust has a gain of $145,000 and Andre's basis in the distributed property is $130,000. 
C)  Rust has a gain of $130,000 and Andre's basis in the distributed property is $350,000. 
D)  Rust has a gain of $145,000 and Andre has dividend income of $130,000. 
E)  None of the above. 
A)  Rust has a gain of $15,000 and Andre has dividend income of $350,000. 
B)  Rust has a gain of $145,000 and Andre's basis in the distributed property is $130,000. 
C)  Rust has a gain of $130,000 and Andre's basis in the distributed property is $350,000. 
D)  Rust has a gain of $145,000 and Andre has dividend income of $130,000. 
E)  None of the above.

Question 6

Which of the following statements is incorrect with respect to determining current E & P?

Accepted Answer

A)  All tax-exempt income should be added back to taxable income. 
B)  Dividends received deductions should be added back to taxable income. 
C)  Charitable contributions in excess of the 10% of taxable income limit should be subtracted from taxable income. 
D)  Federal income tax refunds should be added back to taxable income. 
E)  None of the above statements are incorrect. 
A)  All tax-exempt income should be added back to taxable income. 
B)  Dividends received deductions should be added back to taxable income. 
C)  Charitable contributions in excess of the 10% of taxable income limit should be subtracted from taxable income. 
D)  Federal income tax refunds should be added back to taxable income. 
E)  None of the above statements are incorrect.

Question 7

The dividends received deduction has no impact on E & P.

Accepted Answer

A) True 
 B)False

Question 8

Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.

Accepted Answer

A) True 
 B)False

Question 9

Distributions that are not dividends are a return of capital and decrease the shareholder's basis.

Accepted Answer

A) True 
 B)False

Question 10

During the year, Blue Corporation distributes land to its sole shareholder. If the fair market value of the land is less than its adjusted basis, Blue will not be able to recognize a loss on the distribution.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment. 
B)  Corporations have an incentive to invest in noncorporate rather than corporate businesses. 
C)  The cost of capital for corporate investments is increased. 
D)  Corporations have an incentive to finance operations with debt rather than equity. 
E)  All of the above are consequences of the double tax on dividends. 
A)  Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment. 
B)  Corporations have an incentive to invest in noncorporate rather than corporate businesses. 
C)  The cost of capital for corporate investments is increased. 
D)  Corporations have an incentive to finance operations with debt rather than equity. 
E)  All of the above are consequences of the double tax on dividends.

Question 12

In the current year, Carnation Corporation has a § 179 expense of $20,000. As a result, in the current year, taxable income must be increased by $16,000 to determine current E & P.

Accepted Answer

A) True 
 B)False

Question 13

If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.

Accepted Answer

A) True 
 B)False

Question 14

Starling Corporation has accumulated E & P of $60,000 on January 1, 2015. In 2015, Starling Corporation had an operating loss of $80,000. It distributed cash of $40,000 to Zoe, its sole shareholder, on December 31, 2015. Starling Corporation's balance in its E & P account as of January 1, 2016, is:

Accepted Answer

A)  $60,000 deficit. 
B)  $20,000 deficit. 
C)  $0. 
D)  $60,000. 
E)  None of the above. 
A)  $60,000 deficit. 
B)  $20,000 deficit. 
C)  $0. 
D)  $60,000. 
E)  None of the above.

Question 15

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 2015.​
-A decrease in the LIFO recapture amount during the year.

Accepted Answer

A) Increase 
B) Decrease 
C) No effect 
A) Increase 
B) Decrease 
C) No effect

Question 16

Distributions by a corporation to its shareholders are presumed to be a dividend unless the parties can prove otherwise.

Accepted Answer

A) True 
 B)False

Question 17

Puffin Corporation makes a property distribution to its sole shareholder, Bonnie. The property distributed is a car (basis of $30,000; fair market value of $20,000) that is subject to a $6,000 liability which Bonnie assumes. Puffin has no accumulated E & P and $30,000 of current E & P from other sources during the year. What is Puffin's E & P after taking into account the distribution of the car?

Accepted Answer

A)  $4,000 
B)  $6,000 
C)  $10,000 
D)  $14,000 
E)  None of the above 
A)  $4,000 
B)  $6,000 
C)  $10,000 
D)  $14,000 
E)  None of the above

Question 18

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 2015.​
-Charitable contribution carryforward deducted in the current year.

Accepted Answer

A) Increase 
B) Decrease 
C) No effect 
A) Increase 
B) Decrease 
C) No effect

Question 19

Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.

Accepted Answer

A) True 
 B)False

Question 20

On January 30, Juan receives a nontaxable distribution of stock rights from Platinum Corporation. Each right entitles the holder to purchase one share of stock for $40. One right is issued for every share of stock owned. Juan owns 100 shares of stock purchased two years ago for $4,000. At the date of distribution, the rights are worth $1,000 (100 rights at $10 per right) and Juan's stock in Platinum is worth $5,000 (or $50 per share). On December 1, Juan sells all 100 stock rights for $12 per right. How much gain does Juan recognize on the sale?

Accepted Answer

A)  $1,200 
B)  $533 
C)  $400 
D)  $0 
E)  None of the above 
A)  $1,200 
B)  $533 
C)  $400 
D)  $0 
E)  None of the above

How does the payment of a property dividend affect E & P?

Which one of the following statements about property distributions is false?

A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.

Rust Corporation distributes property to its sole shareholder, Andre. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E & P is $500,000. With respect to the distribution, which of the following statements is correct?

Which of the following statements is incorrect with respect to determining current E & P?

The dividends received deduction has no impact on E & P.

Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.

Distributions that are not dividends are a return of capital and decrease the shareholder's basis.

During the year, Blue Corporation distributes land to its sole shareholder. If the fair market value of the land is less than its adjusted basis, Blue will not be able to recognize a loss on the distribution.

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

In the current year, Carnation Corporation has a § 179 expense of $20,000. As a result, in the current year, taxable income must be increased by $16,000 to determine current E & P.

If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.

Starling Corporation has accumulated E & P of $60,000 on January 1, 2015. In 2015, Starling Corporation had an operating loss of $80,000. It distributed cash of $40,000 to Zoe, its sole shareholder, on December 31, 2015. Starling Corporation's balance in its E & P account as of January 1, 2016, is:

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 2015. -A decrease in the LIFO recapture amount during the year.

Distributions by a corporation to its shareholders are presumed to be a dividend unless the parties can prove otherwise.

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 2015. -Charitable contribution carryforward deducted in the current year.

Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 5: Corporations: Earnings Profits and Dividend Distributions

How does the payment of a property dividend affect E & P?

Which one of the following statements about property distributions is false?

A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.

Which of the following statements is incorrect with respect to determining current E & P?

The dividends received deduction has no impact on E & P.

Corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise.

Distributions that are not dividends are a return of capital and decrease the shareholder's basis.

During the year, Blue Corporation distributes land to its sole shareholder. If the fair market value of the land is less than its adjusted basis, Blue will not be able to recognize a loss on the distribution.

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

In the current year, Carnation Corporation has a § 179 expense of $20,000. As a result, in the current year, taxable income must be increased by $16,000 to determine current E & P.

If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.

Starling Corporation has accumulated E & P of $60,000 on January 1, 2015. In 2015, Starling Corporation had an operating loss of $80,000. It distributed cash of $40,000 to Zoe, its sole shareholder, on December 31, 2015. Starling Corporation's balance in its E & P account as of January 1, 2016, is:

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 2015.​ -A decrease in the LIFO recapture amount during the year.

Distributions by a corporation to its shareholders are presumed to be a dividend unless the parties can prove otherwise.

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 2015.​ -Charitable contribution carryforward deducted in the current year.

Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

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 2015. -A decrease in the LIFO recapture amount during the year.

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 2015. -Charitable contribution carryforward deducted in the current year.