22) Boxer Corporation buys equipment in January of the current year with a 7-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is | A. $14,000 | | B. $15,000 | | C. $1,500 | | D. $3,000 | | |
23) Maxwell Corporation reports the following results: | | Year | Current E&P | Distributions | | 2005 | $6,000 | $4,000 | | 2006 | 5,000 | 1,000 | | 2007 | 1,000 | -0- | | | Maxwell's dividends-received deduction is | A. $5,000 | | B. $12,000 | | C. $0 | | D. $7,000 | | |
24) Identify which of the following statements is false. | A. At formation, a corporation's E&P depends on the amount of capital contributed by the shareholders. | | B. Adjustments to taxable income when computing E&P do not include tax exempt interest. | | C. For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money. | | D. The function of E&P is to provide a measure of a corporation's economic ability to pay dividends. | | |
25) Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current E&P is $20,000. During the year the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. | | Date | Amount Distributed | | April 1 | $20,000 | | June 1 | 20,000 | | August 1 | 15,000 | | November 1 | 5,000 | | | The treatment of the $15,000 August 1 distribution would be | A. $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax-free as a return of capital | | B. $5,000 is taxable as a dividend from current E&P and $10,000 is tax-free as a return of capital | | C. $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P | | D. $15,000 is taxable as a dividend from accumulated E&P | | |
26) Current E&P does not include | A. tax-exempt interest income | | B. life insurance proceeds where the corporation is the beneficiary | | C. federal income tax refunds from prior years | | D. All of the these are included | | |
27) Identify which of the following statements is true. | A. Section 179 property must be expensed ratably over a 5-year period when computing E&P. | | B. Losses on property sales to related parties are not deductible when computing E&P. | | C. Distributions made out of accumulated E&P are allocated ratably between multiple distributions made during the tax year. | | D. All are false. | | |
28) Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000. After the distribution, Harley's basis is | A. $20,000 | | B. $60,000 | | C. $5,000 | | D. $15,000 | | |
29) Hogg Corporation distributes $30,000 to its sole shareholder, Ima. At the time of the distribution, Hoggs' E&P is $14,000 and Ima's basis in her stock is $10,000. Ima's gain from this transaction is | A. $20,000 capital gain | | B. $30,000 capital gain | | C. $6,000 capital gain | | D. $14,000 capital gain | | |
30) One consequence of a property distribution by a corporation to a shareholder is | A. the amount of the distribution is increased by any liability assumed by the shareholder | | B. any liabilities assumed by the shareholder do not reduce the shareholder's basis | | C. the shareholder's basis in the distributed property is the same as the distributing corporation's basis | | D. the holding period of the distributed property includes the holding period of the distributing corporation | | |
31) Identify which of the following statements is true. | A. The distributing corporation's E&P must be reduced by the FMV of nontaxable stock rights distributed to shareholders. | | B. A stock redemption can be used to withdraw some assets from a corporation prior to a sale of the business. | | C. A shareholder can redeem part of his stock and recognize a capital gain if the corporation has only one shareholder. | | D. All are false. | | |
32) Which of the following is not a reason for a stock redemption? | A. desire by remaining shareholders to retain control | | B. No outside market exists for the stock. | | C. Redemption of shares is a good corporate investment. | | D. desire by shareholders to reduce the corporate tax liability | | |
33) Elijah owns 20% of Park Corporation's single class of stock. Elijah's basis in the stock is $8,000. Park's E&P is $28,000. If Park redeems all of Elijah's stock for $48,000, Elijah must report dividend income of | A. $0 | | B. $48,000 | | C. $40,000 | | D. $28,000 | |
