White Corporation is a calendar-year taxpayer. Wilhelmina owns all of its stock. Her basis for the stock is $25,000. On March 1 of the current year (not a leap year), White Corporation distributes $60,000 to Wilhelmina. Determine the tax consequences of the cash distribution to Wilhelmina in each of the following independent situations:
a) Current E&P $15,000, accumulated E&P $50,000.
b) Current E&P $25,000, accumulated E&P $(25,000).
c) Current E&P ($36,500), accumulated E&P $65,000.
d) Current E&P ($10,000), accumulated E&P $(25,000).
a) $60,000 dividend to Wilhelmina; $15,000 out of current E&P and $45,000 out of accumulated E&P.
b) $25,000 is a dividend to Wilhelmina; $25,000 is a return of capital that reduces Wilhelmina's basis to zero; the excess $10,000 is taxable as a capital gain.
c) White's accumulated E&P as of March 1 (of a nonleap year) is $65,000 - [($36,500/365) × 59] = $59,100. Therefore, $59,100 is taxable as a dividend. $900 is a return of capital that reduces Wilhelmina's stock basis to $24,100.
d) $25,000 is a return of capital that reduces Wilhelmina's basis to zero; the excess $35,000 is taxable as a capital gain.
You might also like to view...
A ________ refers to an arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective
A) limited partnership B) strategic alliance C) joint venture D) franchise
A corporation has 20,000 shares of 17%, $50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding
Dividends of $36,000 are in arrears. At the end of the current year, the corporation declares a dividend of $208,000. How is the dividend allocated between preferred and common stockholders? A) The dividend is allocated $2,000 to preferred stockholders and $206,000 to common stockholders. B) The dividend is allocated $206,000 to preferred stockholders and $2,000 to common stockholders. C) The dividend is allocated $208,000 to preferred stockholders and no dividend is paid to common stockholders. D) The dividend is allocated $170,000 to preferred stockholders and $38,000 to common stockholders.
Revenue center responsibility reports show all costs incurred by the department and are useful when management needs to know the full cost of operating the department
Indicate whether the statement is true or false
Which of the following is a limitation of the ERP systems?
a. reduction in operating and administrative costs b. creation of functional boundaries causing problems of accountability and confusion about the lines of responsibility c. reduction in production and delivery lead times d. provision of a real-time, enterprise-wide view of the business for faster and more effective decision-making