Rust Corporation Distributes Property to Its Sole Shareholder, Andre

question 167

Multiple Choice

Rust Corporation distributes property to its sole shareholder, Andre. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E & P is $500,000. With respect to the distribution, which of the following statements is correct?

• A) Rust has a gain of $15,000 and Andre has dividend income of $350,000.
• B) Rust has a gain of $145,000 and Andre's basis in the distributed property is $130,000.
• C) Rust has a gain of $130,000 and Andre's basis in the distributed property is $350,000.
• D) Rust has a gain of $145,000 and Andre has dividend income of $130,000.
• E) None of the above.

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Definitions:

Setup Cost

A fixed cost incurred each time a production process or activity is initiated, which includes costs associated with preparing equipment and facilities for manufacturing.

Carrying Cost

The expenses associated with storing and maintaining inventory, including warehousing, insurance, and spoilage costs.

Safety Stock

Additional inventory kept to prevent stockouts, typically used as a buffer against demand variability or supply chain disruptions.

Lead Time

The total time taken from the initiation of a process or project to its completion.