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

question 77

Multiple Choice

Paladin Corporation had current and accumulated E&P of $500,000 at December 31, 20X3. 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 20X3 would be:

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

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Income Recognition

The accounting principle that revenue should only be recognized after the business has fulfilled its obligations and the payment is certain.

Direct Method

A method for creating a cash flow statement where actual cash flow information from operations is used rather than adjustments to net income.

Operating Cash Receipts

Cash received by a company from its core business operations.