Longhorn Company Reports Current E&P of $100,000 in 20X3 Anda

question 112

Multiple Choice

Longhorn Company reports current E&P of $100,000 in 20X3 anda deficit of ($200,000) in accumulated E&P at the beginning of the year. Longhorn distributed $300,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his stock in Longhorn is $100,000. How is the distribution treated by the shareholder in 20X3?

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

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Definitions:

Placement

The process or act of finding a suitable position or location for someone or something, often used in contexts like education, employment, or foster care.

Compensation

Payment or reward provided for services rendered or harm suffered, often relating to employment or legal settlements.

Müller-Lyer Illusion

A visual illusion in which two lines of the same length appear to be different lengths due to the orientation of arrow-like tails attached to their ends.