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Chapter+5+Examples

Chapter+5+Examples - Name Class Date ID A Ch 5 Examples...

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Name: ________________________ Class: ___________________ Date: __________ ID: A 1 Ch 5 Examples True/False Indicate whether the statement is true or false. ____ 1. When a corporation makes an installment sale, for E & P purposes the realized gain is recognized as payments are received. ____ 2. A corporation borrows money to purchase State of Wisconsin bonds. The interest on the loan has no effect on either taxable income or current E & P. ____ 3. When computing E & P, no adjustment to taxable income is necessary for the domestic production activities deduction. ____ 4. In the current year, Pink Corporation has a § 179 expense of $80,000. As a result, next year , taxable income must be decreased by $16,000 to determine current E & P. ____ 5. Regardless of any deficit in accumulated E & P, distributions during the year are treated as dividends to the extent of current E & P. ____ 6. All dividends received by individual shareholders are subject to either a 15% or a 0% tax rate. ____ 7. During the year, Aqua Corporation distributes land to its sole shareholder. If the fair market value of the land is more than its adjusted basis, Aqua will recognize gain on the distribution. ____ 8. Under no circumstances can a distribution generate (or add to) a deficit in E & P. ____ 9. A constructive dividend must satisfy the legal requirements of a dividend as set forth by applicable state law. ____ 10. If a distribution of stock rights is taxable and their fair market value is less than 15 percent of the value of the old stock, then either a zero basis or a portion of the old stock basis may be assigned to the rights, at the shareholder’s option.
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