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

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fad89e599edc4bfa945112ac4e049338f4e7bb27.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) Introduction – Compute E & P 1 [Pg. 3] Earnings and profits is a measure of: a. After-tax income b. Dividend paying ability c. Liquidity B 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 Retained Earnings (Also E & P) $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 C 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 Retained Earnings ( Also E & P) $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? 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?
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fad89e599edc4bfa945112ac4e049338f4e7bb27.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 qualify for any credits in 2012. Consider the impact of federal income taxes for 2012, but ignore the impact of state income taxes. What is the amount of Charlotte Corporation's accumulated earnings and profits as of January 1, 2013? 6
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