Beaver Company Reports Current E&P of $100,000 in 20X3 and Accumulated

question 27

Multiple Choice

Beaver Company reports current E&P of $100,000 in 20X3 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in 20X3?

• A) $100,000 dividend, $200,000 tax-free return of basis, and $100,000 capital gain.
• B) $200,000 dividend and $200,000 tax-free return of basis.
• C) $300,000 dividend and $100,000 tax-free return of basis.
• D) $400,000 dividend.

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Definitions:

Efficiently

Achieving a goal or producing output with the minimum amount of waste, expense, or unnecessary effort.

Common Resource

A resource like air or water that is accessible to all but is susceptible to overuse and depletion because it is not privately owned.

Public Good

Goods or services that are made available to the entire society for free, by the government or a private organization or individual, not aimed at generating profit.

Common Resource

A type of good that is rivalrous but non-excludable, meaning its use by one individual diminishes its availability for others, but no one can be effectively excluded from using it.