Joined: 08 Jan 2009 Location: United States
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Posted: 17 Mar 2009 at 12:53 | IP Logged
Kent corp. is a calendar year accrual basis C corp. In 2004, Kent made a non liquidating distribution of property with adjusted basis of $150,000 and FMV of $200,000 to Reed its sole shareholder. The foll. information pertains to Kent: Reed's basis in stock - $500,000 Accumulated E&P - $125,000 Current E&P( from operations) - $60,000.
What was taxable as dividend income to Reed? a. 60,000 b. 150,000 c. 185,000 d. 200,000
Becker says answer is d. and wiley says answer is c. Can anyone please explain which is the correct answer. Even i felt the answer should be c. (125,000 + 60,000)
Joined: 07 Feb 2008 Location: United States
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Posted: 17 Mar 2009 at 13:02 | IP Logged
Payal,
i think the answer would be d) bcoz they are distributing PROPERTY dividend so accumulated earning and current earnings will not be considered . For property dividends, its FMV.
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Joined: 27 Dec 2007
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Posted: 17 Mar 2009 at 13:11 | IP Logged
According to me answer should be (d) because when corporation distributes appreciated property it recognizes gain as if sale has been made and the gain increases E&P so gain is 50000 and total E&P is (125000+60000+50000)=235,000
FMV of the property is the dividend to the shareholder(to the extent of E&P) so the answer is (d)
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Topic: Dividend Income
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