40. In November of the current year, Emerald Corporation declared a dividend of $2 per share (the shareholder record date is December 15). Assume that Emerald has sufficient current E & P to cover the dividend payment. If Judy purchases 500 shares of Emerald stock on December 5 and sells the stock on December 25, how is she taxed on the $1,000 dividend?
41. Heather, an individual, owns all of the outstanding stock in Silver Corporation. Heather purchased her stock in Silver nine years ago, and her basis is $56,000. At the beginning of this year, the corporation has $76,000 of accumulated E & P and no current E & P (before considering the effect of the distributions as noted below). What are the tax consequences to Heather (amount and type of income and basis in property received) and Silver Corporation (gain or loss and effect on E & P) in each of the following situations?a.Silver distributes land to Heather. The land was held as an investment and has a fair market value of $54,000 and an adjusted basis of $42,000.Silver recognizes a gain on the distribution of the land to Heather in th amount of $12,000 [$54,000 FMV - $42,000 AB]. Since Silver’s gain increases its E&P, it will have $12,000 of current E&P and $76,000 b.Assume that Silver Corporation has no current or accumulated E & P prior to the distribution. How wouldyour answer to part (a) change? c.Assume that the land distributed in part (a) is subject to a $46,000 mortgage (which Heather assumes). How would your answer change?
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