Assumptions: The stock of ChadCo is owned equally by two shareholders: SecondCo (a corporation) and Arnold (an individual). ChadCo and SecondCo use the accrual method, Arnold uses the cash method. All use a calendar taxable year. Assume 1059 does not apply. Use a 34 percent corporate tax rate in this problem. During the current year, ChadCo accrued income and expenses as follows: Gross income from business $500,000 Dividends on AT&T stock (consider 243) 100,000 Interest on municipal bonds ( 103) 100,000 Capital gain 100,000 Total $800,000 Deductible 162(a)(l) business expenses $430,000 Noncapital expenses not deductible under 162(e) 90,000 Capital losses (see 1211(a)) 146,000 Total $666,000 Net $134,000 Now assume that SecondCos basis in its ChadCo stock is $100,000 and Arnolds basis in his ChadCo stock is $40,000. On January 2 of the current taxable year, ChadCo distributes $100,000 in cash to SecondCo and $100,000 in cash to Arnold. As of the end of the preceding taxable year, ChadCos accumulated E&P was zero. What are the tax consequences of this distribution to ChadCo, SecondCo, and Arnold? [Hint: First compute ChadCos current-year taxable income and then compute current-year E&P before reducing the E&P for the distribution (interim E&P); after reducing for the distribution, compute final accumulated E&P.] (4) Variation: Assume Arnolds shares were owned by a different shareholder every quarter and $50,000 was distributed ratably to all shareholders quarterly? How much dividend would SecondCo and the holders of Arnolds shares receive?