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(TCO 5) Jade Corporation merged into Fluorite Corporation 2 years ago. At the time of the merger, Jade had an E & P deficit of $350,000 and Fluorite...

5. (TCO 5) Jade Corporation merged into Fluorite Corporation 2 years ago. At the time of the merger, Jade had an E & P deficit of $350,000 and Fluorite had a positive E & P of $300,000. The prior 2 years have resulted in a positive E & P of $100,000. Despite having a negative E & P of $30,000 for the year, Fluorite makes a distribution to its shareholders of $370,000. How is the distribution taxed to the shareholders? (Points : 2)
a. $370,000 treated as a return of capital
b. $20,000 taxed as a dividend and $350,000 treated as a return of capital
c. $300,000 taxed as a dividend and $70,000 treated as a return of capital
d. $370,000 taxed as a dividend
e. None of the above
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The answer is
d. $370,000 taxed as a dividend
Workings
E&P available for distribution as dividend
Opening balance of Fluorite’s E&P
300,000
Additional E&P in last 2 years
100,000...

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