(16 points total) Jiminy, Inc. is owned by Cricket. For the year, Jiminy had net income per books of $300,000. This included the following items:

Federal income tax expense $185,000

Interest income¹ $60,000

Rent expense $50,000

Meals/Entertainment $20,000

Depreciation expense² $80,000

Dividends³ $50,000

¹ This interest is from municipal bonds issued by the city of New Orleans.

² Sum-of-the-years-digits method was used for book purposes. Had MACRS been used, depreciation expense would have been $100,000. Had straight-line been used, depreciation would have been $60,000.

³ These dividends were from Jepeto, Inc. Jiminy owns 75% of Jepeto.

During the year, Jiminy pays Cricket a distribution of $400,000. This distribution is in property having a basis of $150,000 to Jiminy. Cricket has a basis of $500,000 in her stock.

13. What are the tax consequences of the distribution to Cricket? (10 points)

14 What are the tax consequences to Jiminy, if any? (2 points)

15. What basis will Cricket take in her stock at the end of the year? (4 points)