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.

---

Definitions:

Scientific Notation

A way of expressing numbers that are too big or too small to be conveniently written in decimal form, using powers of 10.

Value

A piece of data or information that can be stored in a variable, passed as a parameter, or returned by a method in programming.

Invalid Identifier

A term used in programming for a name that does not follow the defined naming conventions or rules for identifiers.

Java

A class-based, high-level object-oriented programming language built to minimize implementation dependencies as much as possible.