Longhorn Company Reports Current E&P of $100,000 in Year 1

question 73

Multiple Choice

Longhorn Company reports current E&P of $100,000 in year 1 and accumulated E&P at the beginning of the year of negative $200,000.Longhorn distributed $300,000 to its sole shareholder on January 1, year 1.The shareholder's tax basis in his Longhorn stock is $100,000.How is the distribution treated by the shareholder in year 1?

• A)$300,000 dividend.
• B)$100,000 dividend, $100,000 nontaxable return of basis, and $100,000 capital gain.
• C)$100,000 dividend and $200,000 nontaxable return of basis.
• D)$0 dividend, $100,000 nontaxable return of basis, and $200,000 capital gain.

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Definitions:

Syllogisms

A form of deductive reasoning that consists of a major premise, a minor premise, and a conclusion.

Deductive Arguments

Arguments where the conclusion logically follows from the premises, such that if the premises are true, the conclusion must also be true.

Premises

Statements or propositions from which conclusions are drawn in logical arguments.

Conclusion

The end or finish of an event, process, or text.