Chapter 19 Assessment Problems
To assess your ability to:
Calculate earnings and profits.
Allocate earnings and profits in corporate distributions.
Relate earnings and profits and the role earnings and profits play in an
Determine the tax impact on property dividends, stock dividends, stock
rights, and constructive dividends.
Complete problems 32, 34, 39, 42, 43, 44, 46, 50, and 54 in Chapter 19 of
West Federal Taxation
32. On September 30, Sparrow Corporation, a calendar year taxpayer, sold a parcel of land
(basis of $300,000) for a $900,000 note. The note is payable in five installments with the
first payment due next year. Because Sparrow did not elect out of the installment method,
none of the $600,000 gain is taxed this year.
Sparrow Corporation had a $400,000 deficit in accumulated E&P at the beginning of the
year. Before considering the effect of the land sale, Sparrow had a deficit in current E&P
Oren, the sole shareholder of Sparrow, has a basis of $150,000 in his stock. If Sparrow
distributes $950,000 to Oren on December 31, how much income must he report for tax
34. In each of the following
situations, indicate the effect on taxable income
and E&P stating the amount of any increase (or decrease) as a result of the transaction.
Assume E&P has already been increased by taxable income.