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

question 69

Multiple Choice

Cavalier Corporation had current and accumulated E&P of $500,000 at December 3120X3. On December 31, the company made a distribution of land to its sole shareholder, Tom Jefferson. The land's fair market value was $200,000 and its tax and E&P basis to Cavalier was $50,000. The tax consequences of the distribution to Cavalier in 20X3 would be:

• A) No gain recognized and a reduction in E&P of $200,000.
• B) $150,000 gain recognized and a reduction in E&P of $50,000.
• C) No gain recognized and a reduction in E&P of $50,000.
• D) $150,000 gain recognized and a reduction in E&P of $200,000.

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Definitions:

Methyl Carbon

A carbon atom bonded to a methyl group, -CH3, often involved in organic reactions.

Tertiary Carbon

A carbon atom bonded to three other carbon atoms, often described in the context of organic molecules and their reactivity.

Bond Dissociation Energy

The amount of energy needed to fracture a particular chemical bond within a mole of gas-phase molecules.

C-H Bonds

A chemical bond formed between a carbon atom and a hydrogen atom, prevalent in organic molecules and important for the structure of hydrocarbons.