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

question 42

Multiple Choice

Longhorn Company reports current E&P of $100,000 in 20X3 and accumulated E&P at the beginning of the year of negative $200,000. 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) $0 dividend, $100,000 tax-free return of basis, and $200,000 capital gain.
• C) $100,000 dividend and $200,000 tax-free return of basis.
• D) $100,000 dividend, $100,000 tax-free return of basis, and $100,000 capital gain.

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Definitions:

Investment Rates

The percentage of an asset's value that is being invested or the rate at which capital is being used to generate economic activity.

Higher Incomes

Increased earnings of individuals, households, or nations, typically leading to more disposable income and consumption.

Growth Of Income

An increase in the amount of money received by an individual, group, or country over a period of time.