C12-Chp-05-2-Homework-Prb-Dividends-2012

C12-Chp-05-2-Homework-Prb-Dividends-2012 -...

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7458cdd4d5e2fb7dfcbeb568880f16a741dcaf2f.doc. Page 1 of 5 First Name______________________________Last Name: ______________________________________ Home work-Chapter 5. Turn in one copy of your solutions at the start of class. (6 pts plus 24 @ 4 Pts. = 102) 1 [Pg. 3] Earnings and profits is a measure of: a. After-tax income b. Dividend paying ability c. Liquidity 2 [Pg. 2. §301, §316, §317] Client owns Local Corporation that is operated in a single location. Ms. Rich started the company many years ago with an investment of $500,000 and has owed all of the stock since that time. Local Corporation- 12-31-2012 Cash $2,000,000 Other Assets- Building, etc. (value $6,000,000) $3,000,000 Total book value of assets $5,000,000 Debt $0 Common Stock (Owner’s Investment) $500,000 $4,500,000 Total Book Value of Debt and Equity $5,000,000 Total Value of All Corporate Assets $8,000,000 Ms. Rich takes a distribution of $1,000,000 in cash on 12-31-12. How income or gain is reported on Ms. Rich’s income tax return for this transaction? a. $800,000 b. $500,000 c. $1,000,000 d. $0 3 [Pg. 2. §301, §316, §317] Ms. Frugal owns Local Corporation that is operated in a single location. She started the company many years ago with an investment of $1,000,000 and has owed all of the stock since that time. Local Corporation- 12-31-2012 Cash $1,000,000 Other Assets- Building, etc. (value $6,000,000) $1,500,000 Total book value of assets $2,500,000 Debt $0 Common Stock (Owner’s Investment) $1,000,000 $500,000 Total Book Value of Debt and Equity $1,500,000 Total Value of All Corporate Assets $7,000,000 Ms. Frugal takes a distribution of $800,000 in cash on 12-31-12. How income or gain is reported on Ms. Frugal’s income tax return for this transaction? a. $800,000 b. $500,000 c. $1,000,000 d. $0 4 [Pg. 2. §301, §316, §317] On 1-1-2011, Ernie started Local Corp. (a C corp.). Ernie paid $100,000 for 100% of the stock. In 2011, Local had after-tax income of $40,000 and paid no dividend. In 2012, Local had after-tax income of $40,000. Current earnings and profits equal after-tax income for Local. Local paid a dividend of $90,000 to Ernie on December 31, 2012. How much dividend income does Ernie report for 2012? a. $0.00 b. $40,000 c. $80,000 d. $90,000
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7458cdd4d5e2fb7dfcbeb568880f16a741dcaf2f.doc. Page 2 of 5 5 [Pg. 3, 4. §312-not helpful here.] Charlotte Corporation , an accrual method taxpayer, had accumulated earnings and profits of $100,000 as of December 31, 2011. For the 2012 tax year, Charlotte's books reflect the following: Sales $700,000 Cost of sales $ 400,000 Municipal bond interest 12,000 Compensation 100,000 Meals and entertainment (Gross) 20,000 Payroll taxes, and Miscellaneous Expense 140,000 Subtotal 660,000 712,000 Net Income before taxes 52,000 Total $ 712,000 $712,000 Charlotte does not have any carryover of losses, deductions or credits to the current year. The company does not
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C12-Chp-05-2-Homework-Prb-Dividends-2012 -...

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