1. On January 1 of the current year, Rhondell Corporation has accumulated E & P of $13,000. Current E & P for the year is $84,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year: A total of $42,000 ($21,000 to Elizabeth and $21,000 to Jonathan) on April 30 and a total of $58,000 ($29,000 to Jonathan and $29,000 to Marhsall) on December 31. Determine the allocation of the distributions by completing the table below. Assume the shareholders have sufficient basis in their stock for any amount that is treated as return of capital.

	From Current E & P	From Accumulated E & P	Treated as Return of Capital
April 30 distribution of $42,000	___________	_______________	______________
December 31 distribution of $58,000	___________	_______________	______________

2. What are the tax consequences to Euclid from the following independent events?

a. Euclid bought 500 shares of common stock five years ago for $50,000. This year, Euclid receives 20 shares of common stock as a nontaxable stock dividend. What is Euclid's basis per share after this event?

b. Assume instead that Euclid received a nontaxable preferred stock dividend of 20 shares. The preferred stock has a fair market value of $5,000, and the common stock, on which the preferred is distributed, has a fair market value of $75,000.

3. Sparrow Corporation (a calendar year, accrual basis taxpayer) has the following transactions in 2016, its second year of operation.

Taxable income $330,000

Federal income tax liability paid 112,000

Tax-exempt interest income 5,000

Meals and entertainment expenses (total) 3,000

Premiums paid on key employee life insurance 3,500

Increase in cash surrender value attributable to life insurance premiums 700

Proceeds from key employee life insurance policy 130,000

Cash surrender value of life insurance policy at distribution 20,000

Excess of capital losses over capital gains 13,000

MACRS deduction 26,000

Straight-line depreciation using ADS lives 16,000

Section 179 expense elected during 2015 25,000

Dividends received from domestic corporations (less than 20% owned) 25,000

Sparrow uses the LIFO inventory method, and its LIFO recapture amount increased by $10,000 during 2016. In addition, Sparrow sold property on installment during 2015. The property was sold for $40,000 and had an adjusted basis at sale of $32,000. During 2016, Sparrow received a $15,000 payment on the installment sale. Finally, assume that no additional first-year depreciation was claimed. Compute Sparrow's current E & P.

4. Shonda owns 1,000 of the 1,500 shares outstanding in Rook Corporation (E & P of $1 million). Shonda paid $50 per share for the stock seven years ago. The remaining stock in Rook is owned by unrelated individuals. What are the tax consequences to Shonda in the following independent situations?

a. Rook Corporation redeems 450 shares of Shonda's stock for $225,000.

b. Rook Corporation redeems 600 shares of Shonda's stock for $300,000.