Yellowstone Corporation Made a Distribution of $300,000 to Cheney Inc

question 11

Essay

Yellowstone Corporation made a distribution of $300,000 to Cheney Inc.in partial liquidation of the company on December 31, year 1.Cheney Inc.owns 50 percent of Yellowstone Corporation (1,000 shares).The other 50 percent is owned by an unrelated corporation.The distribution was in exchange for 50 percent of Cheney's stock in the company (500 shares).At the time of the distribution, the shares had a fair market value of $800 per share.Cheney's income tax basis in the shares was $500 per share.Yellowstone had total E&P of $5,000,000 at the time of the distribution.What is the amount and character (capital gain or dividend)of any income or gain recognized by Cheney as a result of the partial liquidation?

Understand the implications of overhead cost allocation on external reporting under GAAP.

Understand the structure and components of the income statement, including continuing operations, extraordinary items, and discontinued operations.

Identify and differentiate between ordinary and extraordinary items on the income statement.

Recognize and understand the treatment of gains or losses from the disposal of business components and equipment.

---

Definitions:

Traditional Authority

A form of leadership in which the authority of an organization or a ruling regime is largely tied to tradition or custom.

Modern Societies

Societies characterized by significant technological development, social structures, and cultural norms that distinguish them from earlier historical periods.

Respect for the Law

A societal principle prioritizing the observance and adherence to established legal standards and rules.

Power

The power to shape or determine the conduct of individuals or the direction of occurrences.