Chapter 18 Homework

1.
Award: 10.00 points
 
 
Distributions from a corporation to a shareholder are only taxed as dividends when accumulated
earnings and profits are positive.
True
False

2.
Award: 10.00 points
 
 
Z Corporation uses a net capital loss carryover from the prior year to offset current year capital
gains. The net capital loss carryover used in the current year will reduce current earnings and profits.
True
False

3.
Award: 10.00 points
 
 
Which of these items is not an adjustment to taxable income or net loss to compute current E&P?

Disallowed portion of meal expenditures

Salaries and compensation
Tax exempt life insurance proceeds
Federal income taxes paid or accrued

4.
Award: 10.00 points
 
 
Boulder Company reports current E&P of $500,000 this year and a deficit in accumulated E&P at the
beginning of the year of negative ($200,000). Boulder distributed $400,000 to its sole shareholder on
December 31 of this year. How much of the distribution is treated as a dividend this year?
$400,000
$200,000
$300,000
$0

5.
Chapter 18 Homework
Award: 10.00 points
 
 
M Corporation distributes appreciated property to its shareholder as a dividend. M Corporation will
recognize the gain on the distribution of the property and include the gain in taxable income.
True
False

6.
Award: 10.00 points
 
 
Gopher Corporation reported taxable income of $500,000 this year. Gopher paid a dividend of
$100,000 to its sole shareholder, Sven Anderson. The dividend meets the requirements to be a
qualified dividend, and Sven is subject to a tax rate of 15 percent on the dividend. What is the
income tax imposed on the corporate income earned by Gopher and the income tax on the dividend
distributed to Sven?

Corporate tax $105,000

Shareholder tax $15,000
Total income tax $120,000

[The following information applies to the questions displayed below.]

 
Hawkeye Company reports current E&P of $300,000 this year and accumulated E&P at the
beginning of the year of $200,000. Hawkeye distributed $400,000 to its sole shareholder, Ray
Kinsella, on December 31 of this year. Ray’s tax basis in his Hawkeye stock before the distribution is
$75,000.

7.
Award: 10.00 points
 
 
b. What is Ray’s tax basis in his Hawkeye stock after the distribution?
 

Tax basis $75,000

[The following information applies to the questions displayed below.]

 
Jayhawk Company reports current E&P of $300,000 and a deficit in accumulated E&P at the
beginning of the year of ($200,000). Jayhawk distributed $400,000 to its sole shareholder, Christine
Rock, on the last day of the year. Christine’s tax basis in her Jayhawk stock before the distribution is
Chapter 18 Homework
$75,000. (Leave no answer blank. Enter zero if applicable. Negative amount should be
indicated by a minus sign.)

8.
Award: 10.00 points
 
 
a. How much of the $400,000 distribution is treated as a dividend to Christine?

Dividend $300,000

[The following information applies to the questions displayed below.]

 
Jayhawk Company reports current E&P of $300,000 and a deficit in accumulated E&P at the
beginning of the year of ($200,000). Jayhawk distributed $400,000 to its sole shareholder, Christine
Rock, on the last day of the year. Christine’s tax basis in her Jayhawk stock before the distribution is
$75,000. (Leave no answer blank. Enter zero if applicable. Negative amount should be
indicated by a minus sign.)

9.
Award: 10.00 points
 
 
b. What is Christine’s tax basis in her Jayhawk stock after the distribution?

Tax basis $0

[The following information applies to the questions displayed below.]

 
Jayhawk Company reports current E&P of $502,500 and a deficit in accumulated E&P at the
beginning of the year of ($350,000). Jayhawk distributed $592,500 to its sole shareholder, Christine
Rock, on the last day of the year. Christine’s tax basis in her Jayhawk stock before the distribution is
$65,250. (Leave no answer blank. Enter zero if applicable. Negative amount should be
indicated by a minus sign.)

10.
Award: 10.00 points
 
 
c. What is Jayhawk’s balance in accumulated E&P on the first day of next year?

Balance in accumulated E&P at the beginning of next year $(350,000)

Chapter 18 Homework
[The following information applies to the questions displayed below.]

This year, Sooner Company reports a deficit in current E&P of ($300,000). Its accumulated E&P at
the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder,
Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution
is $75,000. (Leave no answer blank. Enter zero if applicable. Negative amount should be
indicated by a minus sign.)

11.
Award: 10.00 points
 
 
a. How much of the $400,000 distribution is treated as a dividend to Boomer?

Dividend $50,000

[The following information applies to the questions displayed below.]

This year, Sooner Company reports a deficit in current E&P of ($300,000). Its accumulated E&P at
the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder,
Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution
is $75,000. (Leave no answer blank. Enter zero if applicable. Negative amount should be
indicated by a minus sign.)

12.
Award: 10.00 points
 
 
b. What is Boomer’s tax basis in his Sooner stock after the distribution?

Tax basis $0