The Serenity Corporation distributes $200,000 in cash to its shareholders during 2019. Accumulated earnings and profits are $80,000 as of January 1, 2019. Current earnings and profits for 2019 are $84,000. Jonas, the sole shareholder of Serenity Corporation, has a basis of $48,000 in his stock. What is the tax effect of the distribution for Jonas?
A. Jonas will recognize ordinary income of $164,000 and a capital gain of $36,000.
B. Jonas will recognize ordinary income of $84,000, capital gain of $80,000, and a tax-free recovery of capital of $36,000.
C. Jonas will recognize ordinary income of $164,000 and a tax-free return of capital of $36,000.
D. Jonas will recognize ordinary income of $164,000 and a capital loss of $12,000.
E. Jonas will recognize ordinary income of $200,000 and a capital loss of $12,000.
Answer: C
You might also like to view...
Cash flows from borrowing and paying off a 180-day bank loan are classified as:
A) operating activities. B) investing activities. C) financing activities. D) purchasing activities.
Making false statements about a competitor's products, services, property, or business reputation could make a company liable for ________
A) intentional misrepresentation B) tort of appropriation C) disparagement D) misappropriation of the right to publicity
Chase, Inc. is considering an eight-year project that has an initial after-tax outlay or after-tax cost of $180,000. The future after-tax cash inflows from its project for years 1 through 8 are the same at $35,000
Chase uses the net present value method and has a discount rate of 12%. Will Chase accept the project? A) Chase accepts the project because the NPV is over $10,000. B) Chase accepts the project because the NPV is about $6,141. C) Chase rejects the project because the NPV is about -$6,133. D) Chase rejects the project because the NPV is below -$7,000.
An LLC is essentially identical to a subchapter S corporation
Indicate whether the statement is true or false