3a quizzes flash cards standard corporation and its

Standard Corporation and its wholly owned subsidiary, Savings Corporation, operated on a calendar year. In January
Year 1, Savings adopted a plan of complete liquidation. Two months later, Savings paid all of its liabilities and distributed
its remaining assets to Standard. These assets consisted of the following:
Cash $60,000 50,000
Land (at
cost)
20,000 10,000
Fair market value of the land was $40,000 / 30,000 . Upon distribution of Savings’ assets to Standard, all of Savings’
capital stock was canceled. Standard’s basis for the Savings stock was $7,000. Standard’s basis in the assets received
in Savings’ liquidation is:
A.
$72,000
B. $92,000
C. $80,000
D. $100,000
CHECK
Standard’s recognized gain in 2015 on receipt of Savings’s assets in
liquidation was:
Two unrelated individuals, Dave and Tom, own all the stock of Arnold Corporation, which has earnings and profits of
$400,000. Because of his inactivity in the business for the last several years, Dave has decided to retire from the
business completely and move to Oregon. Accordingly, Arnold Corporation will redeem all the stock owned by Dave and,
in return, Dave will receive a distribution of $500,000. Dave’s adjusted basis in the stock is $250,000. What will be the
tax effect to Dave?
is treated as
a distribution in part or full payment in exchange for the stock. Since Arnold
Corporation redeemed all of Dave’s stock, the $500,000 distribution is
treated as payment for the stock, and any gain is treated as capital gain. The
amount of the gain is computed under Sec. 1001 and is the amount by which
the distribution exceeds the shareholder’s basis in the stock. In this case, the
gain is $250,000 ($500,000 distribution – $250,000 basis). Since the stock is
Bethel Corporation distributed $125,000 to its shareholders on December 31, 2017, the end of its taxable year. Bethel’s

capital structure was as follows:
Capital stock - 5,000 shares issued
and outstanding $500,000
Current earnings and profits
1/1/17-12/31/17 15,000
Accumulated earnings and profits
3/1/13-12/31/16 75,000
Mr. Rutland held 200 shares of Bethel Corporation’s stock. His basis in the stock was $100 per share. How much of the
Bethel Corporation distribution is a dividend to Mr. Rutland?
A. $1,400
B. $5,000
C. $3,600
D. $3,000
A corporate distribution is a dividend that must be included in the recipient’s gross income under Sec. 301(c)(1)
to the extent it comes from accumulated or current E&P of a corporation. To the extent the distribution
exceeds current and accumulated E&P, it is treated as a return of capital to the shareholder. Bethel Corporation