Clayborn Products, Inc. distributes inventory to its sole shareholder as a dividend during the year. The inventory has a basis of $30,000 to the corporation and a value of $40,000 at the time of the distribution.

Select ALL of the TRUE statements from the list below.

Question options:

	The shareholder has taxable income of $40,000 on the distribution.
	The shareholder has taxable income of $30,000 on the distribution.
	The corporation has a gain of $10,000 on the distribution and E&P is increased by $10,000 as a result.
	The shareholder's basis in the inventory is $30,000.
	The shareholder's basis in the inventory is $40,000.
	The corporation transfers out $40,000 of E&P on the distribution.
	The shareholder's basis in his/her corporate stock is unchanged by this distribution.

Question 4

Adjust the facts of the above question somewhat.

Clayborn Products, Inc. distributes inventory to its sole shareholder as a dividend during the year. The inventory has a basis of $30,000 to the corporation and a value of $40,000 at the time of the distribution. The inventory is encumbered by a $20,000 liability that is assumed by the shareholder.

Select ALL of the TRUE statements from the list below.

Question options:

	The shareholder has taxable income of $40,000 on the distribution.
	The shareholder has taxable income of $20,000 on the distribution.
	The corporation has a gain of $10,000 on the distribution and E&P is increased by $10,000 as a result.
	The shareholder's basis in the inventory is $20,000.
	The shareholder's basis in the inventory is $40,000.
	The corporation transfers out $40,000 of E&P on the distribution.
	The corporation transfers out $20,000 of E&P on the distribution.

Question 7

Kozar Corporation has three unrelated shareholders: Cara, June, and Leroy who own 650, 250, and 100 shares respectively. Kozar redeems 150 of Cara's shares for $15,000. Cara's basis in her 650 shares is $26,000 ($40 per share).

Select all of the true statements from the list below.

Question options:

	Cara has a capital gain of $60 per share.
	Cara has $15,000 of dividend income.
	Cara's basis per share afterward is $52.
	Cara's basis per share for her remaining shares is unchanged.
	Cara's total basis in her shares afterward is $26,000.

Question 8

Koltech Corporation has three shareholders: Jack, Clark, and Connie who own 600, 200, and 200 shares respectively. Clark and Connie are Jack's children. Koltech redeems all of Jack's shares for $150,000. Jack's basis in his shares is $50,000. Jack agrees in writing that he will not acquire a stock interest nor serve as a director, officer, or employee for the next ten years.

Select the true statement from the list below.

Question options:

	Jack has dividend income of $150,000.
	Jack has a capital gain of $150,000.
	Jack has a capital gain of $100,000.
	The corporation will transfer out E&P equal to the full amount of the distribution

Question 9

Keating Corporation owns 90% of Lynch Products, Inc. and the other 10% is owned by minority shareholders. Keating decides to liquidate Lynch under the usual liquidation rules. Keating's basis in Lynch's stock is $2 million.

Lynch's basis in its assets at the time of liquidation is $2 million and the fair market value of those assets is $4 million. Lynch also has unused tax credit carryforwards at the time of liquidation.

Lynch distributes $400,000 of cash to the minority shareholders in liquidation of their stock. The minority shareholders have a basis in stock of $200,000.

Select all of the true statements from the list below.

Question options:

	Lynch has a gain of $2 million on this liquidation.
	Keating has a loss of $400,000 on this liquidation.
	The minority shareholders have a capital gain of $200,000 on this liquidation.
	Lynch's unused tax credits carry over to Keating.
	Neither Lynch nor Keating have a gain on this liquidation.