Question 1

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations):  ​
Warbler Corporation is not a member of a controlled group. As a result of the distribution:

Accepted Answer

A)  The shareholders have dividend income of $200,000. 
B)  The shareholders have dividend income of $260,000. 
C)  Warbler has a recognized gain of $30,000 and a recognized loss of $30,000. 
D)  Warbler has no recognized gain or loss. 
E)  None of the above.

Question 2

The terms "earnings and profits" and "retained earnings" are identical in meaning.

Accepted Answer

A) True 
 B)False

Question 3

On January 2, 2015, Orange Corporation purchased equipment for $300,000 with an ADS recovery period of 10 years and a MACRS useful life of 7 years. Section 179 was not elected. MACRS depreciation properly claimed on the asset, including depreciation in the year of sale, totaled $79,605. The equipment was sold on July 1, 2016, for $290,000. As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:

Accepted Answer

A)  No adjustment is required. 
B)  Decrease $49,605. 
C)  Increase $49,605. 
D)  Decrease $79,605. 
E)  None of the above.

Question 4

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.​
-State income tax paid in the current year.

Accepted Answer

A) Increase 
B) Decrease 
C) No effect

Question 5

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.​
-Excess capital loss in year incurred.

Accepted Answer

A) Increase 
B) Decrease 
C) No effect

Question 6

Aaron and Michele, equal shareholders in Cavalier Corporation, receive $25,000 each in distributions on December 31 of the current year. During the current year, Cavalier sold an appreciated asset for $60,000 (basis of $15,000). Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 6 percent. Before considering the effect of the asset sale, Cavalier's current year E & P is $40,000 and it has no accumulated E & P. How much of Aaron's distribution will be taxed as a dividend?

Accepted Answer

A)  $0 
B)  $20,000 
C)  $25,000 
D)  $42,500 
E)  None of the above

Question 7

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.​
-Dividends received deduction.

Accepted Answer

A) Increase 
B) Decrease 
C) No effect

Question 8

Which of the following statements regarding constructive dividends is not correct?

Accepted Answer

A)  Constructive dividends do not need to be formally declared or designated as a dividend. 
B)  Constructive dividends need not be paid pro rata to the shareholders. 
C)  Corporations that receive constructive dividends may not use the dividends received deduction. 
D)  Constructive dividends are taxable as dividends only to the extent of earnings and profits. 
E)  All of the above.

Question 9

Briefly discuss the rules related to distributions of non-cash property.

Accepted Answer

The answer of Briefly discuss the rules related to distributions...

Question 10

Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.

Accepted Answer

A) True 
 B)False

Question 11

Provide a brief outline on computing current E & P.

Accepted Answer

The answer of Provide a brief outline on computing current...

Question 12

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
-Gain on installment sale in 2015 deferred until 2016.

Accepted Answer

A) Increase 
B) Decrease 
C) No effect

Question 13

Renee, the sole shareholder of Indigo Corporation, sold her stock to Chad on July 1 for $180,000. Renee's stock basis at the beginning of the year was $120,000. Indigo made a $60,000 cash distribution to Renee immediately before the sale, while Chad received a $120,000 cash distribution from Indigo on November 1. As of the beginning of the current year, Indigo had $26,000 in accumulated E & P, while current E & P (before distributions) was $90,000. Which of the following statements is correct?

Accepted Answer

A)  Renee recognizes a $60,000 gain on the sale of the stock. 
B)  Renee recognizes a $64,000 gain on the sale of the stock. 
C)  Chad recognizes dividend income of $120,000. 
D)  Chad recognizes dividend income of $30,000. 
E)  None of the above.

Question 14

Falcon Corporation ended its first year of operations with taxable income of $250,000. At the time of Falcon's formation, it incurred $50,000 of organizational expenses. In calculating its taxable income for the year, Falcon claimed an $8,000 deduction for the organizational expenses. What is Falcon's current E & P?

Accepted Answer

A)  $200,000 
B)  $208,000 
C)  $250,000 
D)  $258,000 
E)  None of the above

Question 15

Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2016. Among its transactions for the year are the following:  
Disregarding any provision for Federal income taxes, determine Kite Corporation's current E & P for 2016.

Accepted Answer

The answer of Kite Corporation, a calendar year taxpayer, has...

Question 16

If there is sufficient E & P, a distribution of nonconvertible preferred stock to common shareholders is taxable.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  $0 
B)  $90,000 
C)  $112,500 
D)  $180,000 
E)  None of the above

Question 18

As of January 1, Cassowary Corporation has a deficit in accumulated E & P of $100,000. For the tax year, current E & P (accrued ratably) is $240,000 (prior to any distributions). On July 1, Cassowary Corporation distributes $275,000 to its sole shareholder. The amount of the distribution that is a dividend is:

Accepted Answer

A)  $20,000. 
B)  $140,000. 
C)  $240,000. 
D)  $275,000. 
E)  None of the above.

Question 19

Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P.

Accepted Answer

A) True 
 B)False

Question 20

Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.

Accepted Answer

A) True 
 B)False

Exam 5: Corporations: Earnings Profits and Dividend Distributions

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : Warbler Corporation is not a member of a controlled group. As a result of the distribution:

The terms "earnings and profits" and "retained earnings" are identical in meaning.

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. -State income tax paid in the current 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. -Excess capital loss in year incurred.

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. -Dividends received deduction.

Which of the following statements regarding constructive dividends is not correct?

Briefly discuss the rules related to distributions of non-cash property.

Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.

Provide a brief outline on computing current E & P.

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 -Gain on installment sale in 2015 deferred until 2016.

Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2016. Among its transactions for the year are the following: Disregarding any provision for Federal income taxes, determine Kite Corporation's current E & P for 2016.

If there is sufficient E & P, a distribution of nonconvertible preferred stock to common shareholders is taxable.

Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P.

Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.

Exam 5: Corporations: Earnings Profits and Dividend Distributions

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : ​ Warbler Corporation is not a member of a controlled group. As a result of the distribution:

The terms "earnings and profits" and "retained earnings" are identical in meaning.

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.​ -State income tax paid in the current 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.​ -Excess capital loss in year incurred.

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.​ -Dividends received deduction.

Which of the following statements regarding constructive dividends is not correct?

Briefly discuss the rules related to distributions of non-cash property.

Dividends paid to shareholders who hold both long and short positions do not qualify for the reduced tax rate available to individuals in certain years.

Provide a brief outline on computing current E & P.

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 -Gain on installment sale in 2015 deferred until 2016.

Kite Corporation, a calendar year taxpayer, has taxable income of $360,000 for 2016. Among its transactions for the year are the following: Disregarding any provision for Federal income taxes, determine Kite Corporation's current E & P for 2016.

If there is sufficient E & P, a distribution of nonconvertible preferred stock to common shareholders is taxable.

Nondeductible meal and entertainment expenses must be subtracted from taxable income to determine current E & P.

Under certain circumstances, a distribution can generate (or add to) a deficit in E & P.

In the current year, Warbler Corporation (E & P of $250,000) made the following property distributions to its shareholders (all corporations) : Warbler Corporation is not a member of a controlled group. As a result of the 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 2015. -State income tax paid in the current 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. -Excess capital loss in year incurred.

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. -Dividends received deduction.