Questions - Please show basic Calculations. Thank you.
Q1. On the last day of the year, Smith Corp made a nonliquidating distribution to Fred, its sole shareholder, of $110,000 in cash. The corporation's earnings and profits were $100,000 on the last day of the year. How much was the total dividend income received by the shareholder as a result of the distribution made by Smith Corpo?
a. 0.
b. $100,000 dividend.
c. $110,000 dividend.
d. None of the above.
Q2. Susan transferred property to her solely owned corporation, DA Inc. The property had an adjusted basis to Susan of $60,000 and a fair market value of $100,000 on the date of the transfer and the corporation assumed an $80,000 liability on the property. On the same day, and in exchange for the property she transferred to DA Inc., Susan received a payment of $10,000 and 10 additional shares of SDA Inc.'s only class of stock. How much gain was recognized by Debra as a result of this transaction?
a. 0.
b. $10,000.
c. $20,000.
d. $30,000.
e. $40,000.
Q3. Pat owned an equipment rental business in her sole name for four years. In January of 2013, Pat transferred the equipment to ABC Rental Corporation, a newly formed corporation. Pat received all of the stock of ABC Rental Corporation in exchange for the equipment. At the time of the transfer of the equipment to ABC Rental Corporation, Pat's adjusted basis in the equipment was $50,000, the fair market value of the equipment was $150,000, the equipment was subject to a security agreement and note assumed by the corporation in the amount of $70,000, and there was depreciation recapture potential of $12,000. Pat received stock of ABC Rental Corporation worth $80,000.
How much gain did Pat recognize as a result of the transaction, and what was the character of the gain?
a. Pat recognized $12,000 of gain, all of which was ordinary income.
b. Pat recognized $20,000 of gain, at least $12,000 of which was ordinary income.
c. Pat recognized $30,000 of gain, at least $12,000 of which was ordinary income.
d. Pat recognized $100,000 of gain, all of which was ordinary income.
Q4. NOCO Inc. had current earnings and profits of $150,000 when it made a nonliquidating distribution to an individual shareholder of land that NOCO Inc. held for use in its business. On the date the land was distributed, NOCO Inc.'s adjusted basis in the land was $120,000, the fair market value of the land was $160,000, and the land was encumbered by a $140,000 mortgage, which liability was assumed by the shareholder. After the distribution, how much are NOCO Inc.'s earning and profits?
a. $130,000.
b. $150,000.
c. $160,000.
d. $170,000.
Q5. A tract of land was distributed by WESTO Inc. to its sole shareholder, Steve, as a dividend. At the time of the distribution, WESTO Inc.'s adjusted basis in the land was $40,000, the fair market value of the land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of the following statements is accurate?
a. WESTO Inc.'s earnings and profits must be increased by $40,000 , the amount of the unrecognized gain, and decreased by $40,000 (the adjusted basis of the land), and increased by $55,000 (the amount of the liability).
b. None of the above statements is accurate.
Q6. SMTO Inc. had one class of stock outstanding. The one class of stock was owned 50 shares by Lana, 30 shares by Lana's mother, and 20 shares by Lana's grandmother. On December 31, 2012, SMTO Inc. redeemed 20 of Lana's 50 shares, and in exchange for the stock, SMTO Inc. distributed to Lana a building that had an adjusted basis to SMTO Inc. of $10,000 and a fair market value of $50,000. Assume that SMTO Inc.'s current earnings and profits were $200,000, there were no accumulated earnings and profits, and Lana's total basis in her stock before the redemption was $20,000. How much is Lana's basis in her remaining stock after the redemption, and what is her basis in the building?
a. Stock basis: $10,000; building basis: $10,000.
b. Stock basis: $10,000; building basis: $50,000.
c. Stock basis: $20,000; building basis: $10,000.
d. Stock basis: $20,000; building basis: $50,000.
e. None of the above.
Q7. Fun Inc. is a calendar year corporation. Fun Inc. had no accumulated earnings and profits, but had $100,000 of current earnings and profits in 2012. On December 31, 2012, Fun Inc. distributed a total of $160,000 to its two equal shareholders, Jean and Jon. On the date of the cash distribution, Jean's basis in her Fun Inc. stock was $10,000 and Jon's basis in his Fun Inc. stock was $30,000. What is Jon's adjusted basis in his EFG Inc. stock after the distribution?
a. 0.
b. $5,000.
c. $15,000.
d. none of the above.
Q8. XYZ, Corp. owned 85% of ABC Corporation. XYZ Corp. received a liquidating distribution from ABC Corporation as part of the complete liquidation of ABC Corporation. XYZ Corp.'s basis for its ABC Corporation stock was $10,000. In exchange for its stock, XYZ Corp. received a payment of $15,000 and real property that had an adjusted basis to ABC Corporation of $10,000, a fair market value of $25,000, and that was encumbered by a $12,000 mortgage which XYZ Corp. assumed. How much gain or loss did XYZ Corp. recognize as a result of this transaction and what is XYZ Corp.'s basis in the real property?
a. $3,000 gain recognized, and basis in real property of $40,000.
b. $18,000 gain recognized, and basis in real property of $25,000.
c. $0 gain recognized, and basis in real property of $25,000.
d. $0 gain recognized, and basis in real property of $10,000.
e. $18,000 gain recognized, and basis in real property of $35,000.
Q9. Bob owns 60 percent of CCorp. CCorp had acquired land known as the Parcel in January of 2000 for $68,000 and held the Parcel for investment purposes. During the current taxable year, CCorp sold the Parcel to Bob for $65,000 which amount was equal to the fair market value of the Parcel. Shortly after receiving the Parcel, Bob, never having made any gifts before, gave the Parcel to his friend John from college when the property was worth $70,000. John sold the Parcel two years later to Ann, a person not related to CCorp, Bob, Ann, or John, for $60,000. How much gain or loss is realized and recognized as a result of these three transfers?
a. CCorp realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Bob realizes a gain of $8,000 and recognizes a gain of 5,000 on the transfer to John; John realizes and recognizes a loss of $8,000 on the transfer to Ann.
b. CCorp realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Bob does not realize or recognize a gain or loss on the transfer to John; John realizes loss of $8,000 and recognizes a loss of $8,000 on the transfer to Ann.
c. CCorp realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Bob does not realize or recognize any gain or loss on the transfer to John; John realizes and recognizes a loss of $5,000 on the transfer to Ann.
d. CCorp realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Bob realizes a gain of $5,000 and recognizes a gain of $5,000 on the transfer to John; John realizes and recognizes a loss of $10,000 on the transfer to Ann.