A Corporation Distributes Land Worth $200,000 to Its Sole Shareholder

question 48

Multiple Choice

A corporation distributes land worth $200,000 to its sole shareholder. The corporation had purchased the land several years ago for $120,000. The corporation has over $1 million of E&P. How much income will the corporation and the shareholder recognize?

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Definitions:

Common Fixed Expense

Costs that do not vary with production volume, and are shared among different products or business segments.

Contribution Margin Ratio

The portion of sales revenue left over after variable expenses have been deducted, expressed as a percentage of sales revenue.

Variable Expenses

Costs that vary in direct proportion to changes in an activity level or volume, such as raw materials and direct labor.

Sales

Sales refer to the revenue generated from the exchange of goods or services for money or other assets between a seller and a buyer.