Monsters, Inc. has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows:

Vincent Price 400

Bela Lugosi (Vinnies dad) 175

Boris Karloff (Vinnies cousin) 100

Lon Chaney (Vinnies grandfather, no relation to Bela)

100 Faye Wray (Vinnies daughter) 125

Anthony Perkins 100

Total 1,000 Monsters, Inc. has revenue of $500,000, including dividends from a 12% owned company of $10,000 and tax exempt interest income of $3000. Monsters also has ordinary business expenses of $189,000 (including Life Insurance premiums for employee owned policies of $8,000, life insurance premiums on officers lives with the company as the beneficiary of $5,000, interest on a loan to purchase a tax exempt bond of $1,000). Also, the company donated $50,000 to the Alzheimers Association in 2019, utilized an $8,000 NOL carryover and had no NOL or capital loss carrybacks. During 2019 the company paid federal tax expense of $88,740 and recorded the same amount on their income statement (not included in the ordinary business expenses above.) Monsters, Inc, has accumulated E&P at January 1, 2019 of $500,000.

During 2019, the corporation made the following distributions to its shareholders:

03/31: Paid a dividend of $10/share to each shareholder ($10,000 in total).

06/30: Redeemed 250 shares of Vinnies stock for $250,000. Vinnies basis in the 250 shares redeemed was $175,000. Each of his shares had the same basis.

10/31: Redeemed 70 shares of Boriss stock for $40,000. His basis in the 70 shares was $28,000. Each of his shares had the same basis.

12/31: Paid a dividend of $15/share to each shareholder.

a. Determine book income and determine taxable income using Form 1120 page 1 and Schedule M 1 to show your work, in addition to any other workpapers required. Identify any book/tax differences as temporary or permanent, favorable or unfavorable. Use a workpaper similar to the example in Chapter 16 of your book to present this information.

b. Determine the tax status of each distribution made during 2019 and the tax treatment required by each shareholder.

c. What is Vincent Prices basis in his remaining stock?

d. What is Boris Karloffs basis in his remaining stock?

e. What is accumulated E&P at December 31, after the last distribution of the year?