Paladin Corporation Had Current and Accumulated E&P of $500,000 at December

question 68

Multiple Choice

Paladin Corporation had current and accumulated E&P of $500,000 at December 31, year 1.On December 31, the company made a distribution of land to its sole shareholder, Maria Mendez.The land's fair market value was $200,000 and its tax and E&P basis to Paladin was $250,000.Maria assumed a liability of $25,000 attached to the land.The tax consequences of the distribution to Paladin in year 1 would be:

• A)No loss recognized and a reduction in E&P of $200,000.
• B)$50,000 tax and E&P loss recognized and a reduction in E&P of $200,000.
• C)$50,000 tax and E&P loss recognized and a reduction in E&P of $225,000.
• D)No loss recognized and a reduction in E&P of $225,000.

---

Definitions:

Inventory

The total amount of goods and materials held by a company intended for sale or used in production, crucial for managing supply chains and fulfilling customer orders.

Economic Order Quantity

A formula used to determine the ideal order quantity that minimizes the total costs of inventory, including holding costs and ordering costs.

Shortage Cost

Shortage cost refers to the costs a company incurs when it is unable to meet demand due to insufficient inventory or resources.

Net Working Capital

The discrepancy between an organization's immediate assets and its short-term obligations, showing the accessible liquidity to manage its activities.