Problem 19-39 (LO. 1, 3)

Larry, the sole shareholder of Brown Corporation, sold his Brown stock to Ed on July 30 for $270,000. Larry's basis in the stock was $200,000 at the beginning of the year. Brown had accumulated E & P of $120,000 on January 1 and has current E & P of $240,000. During the year, Brown made the following distributions: $450,000 of cash to Larry on July 1 and $150,000 of cash to Ed on December 30.

If an amount is zero, enter "0".

a. How will Larry and Ed be taxed on the distributions?

Larry will have the following:

Dividend income: $ 300,000 (correct)

Return of capital: $ ______??

Capital gain: $ 0 (correct)

Ed will have the following:

Dividend income: $ 60,000 (correct)

Return of capital: $ ______??

Capital gain: $ 0 (correct)