CHAPTER19SOLUTIONS - CHAPTER 19 SOLUTIONS END OF CHAPTER...

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CHAPTER 19 SOLUTIONS END OF CHAPTER QUESTIONS COVERED IN LECTURE – NOT COLLECTED : 7, 8, 9, 10, 11, 14, 15, 16, 17, 25, 26, 27, AND 29 7. A variety of factors should be considered, including: What is the E & P of Falcon Corporation? Has E & P been accurately determined for tax purposes? How much E & P is allocated to each shareholder’s distribution? How will the distribution affect Falcon Corporation’s E & P? Is the distribution in partial or complete liquidation of Falcon Corporation? Does the distribution qualify as a stock redemption for tax purposes? What is the tax basis to the shareholders of Falcon Corporation stock? 19-6 2008 Comprehensive Volume/Solutions Manual Also important is the nature of the shareholder. In the case of a corporate shareholder (Hawk Corporation in this situation), a dividends received deduction is available. In constrast, individual shareholders may qualify for the 15%/5% rates. pp. 19-2 to 19-15 and Chapters 17 and 20 8. To qualify for the reduced 15%/5% tax rates, a dividend must be paid to an individual shareholder by a qualifying corporation (U.S. corporations and certain eligible foreign corporations). In addition, the shareholder cannot hold both long and short positions in the stock at the time the dividend is paid. Finally, the shareholder must hold the stock for 60 days during the 121-day period beginning 60 days before the ex-dividend date. p. 19-12 9. A corporation may distribute a property dividend for various reasons. The shareholders could want a particular property that is held by the corporation. The corporation may be strapped for cash but does not want to forgo distributing a dividend to its shareholders. p. 19-12 10. Distributing automobile C triggers taxable gain of $8,000 for Raven Corporation, while distributing A produces a nondeductible loss of $7,000. To preserve the loss on A and avoid recognizing gain on C, Raven should consider selling A and then distributing cash to the second shareholder. Raven should also distribute automobile B because there will be no gain on the distribution and no nondeductible loss. p. 19-14 11. Probably not, unless the corporation has some capital losses it cannot use. In the case of
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