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Jasper Junction Corporation (JJC) is an accrual basis, calendar-year entity that was created by Chao, Iris, and Nolan in 20X1. JJC furnishes the original incorporation agreement. The shareholders' bases in the assets contributed are as follows Cash $150,000 Equipment $245,000 Inventory $380.000 Land and Building $375,000 The first five years of business have been lean years. Nolan had to loan the corporation $75,000 to ensure that JJC had enough cash to pay its bills and its Accumulated Earnings and Profits only amounts to $23.000 at the end of 20X5. JJC has its first year of substantial income in 20X6. It also sells some of its land for $100.000 cash, but the sale results in a capital loss. The Board of Directors decides to pay $250,000 in dividends to its shareholders. This is in addition to the $3.500 of interest it pays on the bonds and the $1.500 it pays to Nolan on the money he loaned JJC. The income and expenses of JJC for 20X6, taxable income, and current E&P are provided in the Table below. Corporate Agreement Taxable Current Amount Incone EXO Income Taxable Income 176, See Sales 412,000 412, abe COGS 150,000 (150,000) Dividends (own 5) 133,00 133,aee Muni Bond Interest 1,000 1,000 Expenses Capital loss 32,935 (32,935) Interest Expense 5,000 (5,000) Operating Expenses 120,000 (120,000) Key Life Insurance Preniuns 6,000 (6,600) Taxable income before Special Deductions 270, eee Charitable contributions 30,000 (27,aee) (3,600) Dividend Receivable Deduction 66,500 66,500 Taxable Incone 176,50 Federal Income Tax 37,865 (37,665) Current E&P 165,eee Analyze the information provided to reconcile the shareholders' beginning and ending bases in their stock to determine the federal tax consequences of JJC's corporate distributions. (Decreases should be entered with a minus sign.) Shareholder Beginning Ownership Percentage 196) Basis in Increases or (Decreases) Ending Basis in Stock Stock Chao 1 4 Iris 7 8 Tetable Distributions (Dividends Capital Gelns) 5. Dividends 6 Capital gains 11. Dividends 12. Capital gains 17. Dividends 18 Capital gains 9 10 Nolan 13 14 15 16 Jasper Junction Corporation (JJC) is an accrual basis, calendar-year entity that was created by Chao, Iris, and Nolan in 20X1. JJC furnishes the original incorporation agreement. The shareholders' bases in the assets contributed are as follows Cash $150,000 Equipment $245,000 Inventory $380.000 Land and Building $375,000 The first five years of business have been lean years. Nolan had to loan the corporation $75,000 to ensure that JJC had enough cash to pay its bills and its Accumulated Earnings and Profits only amounts to $23.000 at the end of 20X5. JJC has its first year of substantial income in 20X6. It also sells some of its land for $100.000 cash, but the sale results in a capital loss. The Board of Directors decides to pay $250,000 in dividends to its shareholders. This is in addition to the $3.500 of interest it pays on the bonds and the $1.500 it pays to Nolan on the money he loaned JJC. The income and expenses of JJC for 20X6, taxable income, and current E&P are provided in the Table below. Corporate Agreement Taxable Current Amount Incone EXO Income Taxable Income 176, See Sales 412,000 412, abe COGS 150,000 (150,000) Dividends (own 5) 133,00 133,aee Muni Bond Interest 1,000 1,000 Expenses Capital loss 32,935 (32,935) Interest Expense 5,000 (5,000) Operating Expenses 120,000 (120,000) Key Life Insurance Preniuns 6,000 (6,600) Taxable income before Special Deductions 270, eee Charitable contributions 30,000 (27,aee) (3,600) Dividend Receivable Deduction 66,500 66,500 Taxable Incone 176,50 Federal Income Tax 37,865 (37,665) Current E&P 165,eee Analyze the information provided to reconcile the shareholders' beginning and ending bases in their stock to determine the federal tax consequences of JJC's corporate distributions. (Decreases should be entered with a minus sign.) Shareholder Beginning Ownership Percentage 196) Basis in Increases or (Decreases) Ending Basis in Stock Stock Chao 1 4 Iris 7 8 Tetable Distributions (Dividends Capital Gelns) 5. Dividends 6 Capital gains 11. Dividends 12. Capital gains 17. Dividends 18 Capital gains 9 10 Nolan 13 14 15 16
