Delta Corp has 2 equal shareholders. Able and Body. Delta and Able & Body are all cash method calendar year taxpayers. On 1/01 of the current year, Deltas A/E&P was $5,000, and its C/E&P during the present year was $20,000. Each of the E&P figures were computed without any adjustment needed because of the distributions described below. On 7/01 of the present year, Delta distributed some machinery to Able and some equipment to Body. The machinery distributed to Able had an adjusted basis of Delta of $45,000 and a fair market value of $25,000 at the time of distribution. The equipment distributed to Body had an adjusted basis to Delta of $15,000 and a fair market value of $25,000 at the time of distribution. No other distributions were made by Delta during the present year.

1. Assume A & B are both individuals. What is the effect of the July distribution to A & B and to Delta?
2. Assume that the machinery Delta distributed to Able was subject to a mortgage of $10,000 and the equipment distributed to Body was subject to a mortgage of $10,000. How would this affect your answers to any of the questions in (a) above?
3. What is the basis to the two shareholders of the respective property received by each shareholder in question (a) & (b) above