Describe the effect of a $135,000 cash distribution paid on January 1 to the sole shareholder of a calendar year corporation whose stock basis is $35,000 when the corporation has the following scenarios: $135,000 of current E&P and $135,000 of accumulated E&P a. b. A $41,000 accumulated E&P deficit and a $87,000 current E&P balance C. A $70,000 accumulated E&P deficit and a $70,000 current E&P deficit d. An $65,000 current E&P deficit and a $135,000 accumulated E&P balance Answer Parts a through d again, assuming instead that the corporation makes the distribution on October 1 in a nonleap year. a. Describe the effect of a $135,000 cash distribution paid on October 1 to the sole shareholder of a calendar year corporation whose stock basis is $35,000 when the corporation has $135,000 of current E&P and $135,000 of accumulated E&P. A. First, $35,000 is a return of capital that reduces the shareholder's stock basis to zero. The remaining $100,000 is a capital gain. B. The dividend is a $135,000 dividend payable out of accumulated E&P. C. The distribution is a $135,000 dividend payable out of current E&P. D. First, $35,000 is a return of capital that reduces the shareholder's stock basis to zero. The remaining $100,000 is ordinary income. b. Describe the effect of a $135,000 cash distribution paid on October 1 to the sole shareholder of a calendar year corporation whose stock basis is $35,000 when the corporation has a $41,000 accumulated E&P deficit and a $67,000 current E&P balance. A. First, $35,000 is a return of capital that reduces the shareholder's stock basis to zero. Second, $87,000 of the distribution is ordinary income from current E&P. Third, the remaining $33,000 is a capital gain. The $41,000 accumulated E&P deficit remains. B. First, $35,000 is a return of capital that reduces the shareholder's stock basis to zero. Second, $100,000 of the distribution is ordinary income from current E&P. The $41,000 accumulated E&P deficit remains. OC. First, $33,000 is a return of capital that reduces the shareholder's stock basis to zero. Second, $67,000 of the distribution is ordinary income from current E&P. Third, the remaining $35,000 is a capital gain. The $41,000 accumulated E&P deficit remains. D. First, $67,000 of the distribution is a dividend from current E&P. Second, $35,000 is a return of capital that reduces the shareholder's stock basis to zero. Third, the remaining $33,000 is a capital gain. The $41,000 accumulated E&P deficit remains. c. Describe the effect of a $135,000 cash distribution paid on October 1 to the sole shareholder of a calendar year corporation whose stock basis is $35,000 when the corporation has a $70,000 accumulated E&P deficit and a $70,000 current E&P deficit. A. The distribution is a $135,000 dividend payable out of accumulated E&P. OB. First, $35,000 of the distribution is a return of capital that reduces the shareholder's stock basis to zero. Second, $35,000 is a capital gain. A $70,000 accumulated E&P deficit remains. OC. First, $35,000 is a capital loss. The remaining $100,000 is ordinary income. D. First, $35,000 of the distribution is a return of capital that reduces the shareholder's stock basis to zero. Second, the remaining $100,000 is a capital gain. A $140,000 accumulated E&P deficit remains. d. Describe the effect of a $135,000 cash distribution paid on October 1 to the sole shareholder of a calendar year corporation whose stock basis is $35,000 when the corporation has an $65,000 current E&P deficit and a $135,000 accumulated E&P balance. (Do not round intermediary calculations. Only round your final answer to the nearest dollar.) A. The distribution is a $135,000 dividend payable out of accumulated E&P. None of the current E&P deficit reduces accumulated E&P since the distribution is made on October 1. B. Accumulated E&P as of October 1 is $86,384 so that $86,384 of the distribution is a dividend. Allocation of the current E&P deficit to the pre-October 1 period is accomplished by multiplying $65,000 times 273/365. Of the remaining $48,616, $35,000 is a return of capital that reduces the shareholder's stock basis to zero, and the remaining $13,616 is a capital gain. OC. The distribution is a $135,000 dividend payable out of accumulated E&P. The current E&P deficit reduces accumulated E&P. D. First, $65,000 of the distribution is a dividend payable out of accumulated E&P. The remaining $70,000 reduces current E&P.