Pink Corporation is a calendar year taxpayer. Pete owns one-third (100 shares) of Pink stock. His basis in the stock is $25,000. Cheryl owns two-thirds (200 shares) of Pink stock. Her basis in the stock is $40,000. On June 10 of the current year, Pink distributes $40,000 to Pete and $80,000 to Cheryl.

A. Determine the tax consequences of the cash distributions to Pete and Cheryl if current E&P is $60,000 and accumulated E&P is $100,000.

	Pete	Cheryl
Distribution
Dividend income
Remaining distribution
Return of capital
Capital gain (loss)
Remaining stock basis

B. determine the tax consequences of the cash distributions to Pete and Cheryl if current E&P is $36,000 and accumulated E&P is $30,000.

	Pete	Cheryl
Distribution
Dividend income
Remaining distribution
Return of capital
Capital gain (loss)
Remaining stock basis