M&E Corporation Has Two Shareholders, Marco and Edward

question 14

Multiple Choice

M&E Corporation has two shareholders, Marco and Edward.M&E Corporation has current E&P of $50,000 and a deficit in accumulated E&P of $40,000.M&E Corporation is in the 25% marginal tax bracket.M&E Corporation distributes investment land to these shareholders.The land distributed to Marco has a FMV of $30,000 and a basis to M&E Corporation of $24,000.The land distributed to Edward has a FMV of $30,000 and a basis to M&E Corporation of $26,000.Marco's basis for his stock is $2,000.Edward's basis for his stock is $1,000.How much gain, if any, does M&E Corporation recognize on the distribution of this land to its shareholders?

• A)$0
• B)$4,000
• C)$6,000
• D)$10,000

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Definitions:

Asset Improvements

Expenditures made to enhance the usefulness, performance, or lifespan of an asset without acquiring a new one.

Ordinary Maintenance

Routine upkeep and repairs necessary to keep equipment, buildings, and other assets in working order, distinct from major renovations or upgrades.

Trade-In Allowance

The value offered for an old item when it is traded for a new item, reducing the purchase price of the new item.

Book Value

Book Value refers to the net value of a company or an asset calculated by total assets minus intangible assets (patents, goodwill) and liabilities, used to estimate the value of a company on its balance sheet.