Tangelo Corporation Has an August 31 Year-End

question 61

Multiple Choice

Tangelo Corporation has an August 31 year-end. Tangelo had $50,000 in accumulated E & P at the beginning of its 2019 fiscal year (September 1, 2018) and during the year, it incurred a $75,000 operating loss. It also distributed $65,000 to its sole shareholder, Cass, on November 30, 2018. If Cass is a calendar year taxpayer, how should she treat the distribution when she files her 2018 income tax return (assuming the return is filed by April 15, 2019) ?

• A) $65,000 of dividend income.
• B) $60,000 of dividend income and $5,000 recovery of capital.
• C) $50,000 of dividend income and $15,000 recovery of capital.
• D) The distribution has no effect on Cass in the current year.
• E) None of the above.

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Definitions:

Revenue Accounts

Accounts that record the income a company earns from its normal business activities.

Expense Accounts

Accounts that track the costs of operating a business, such as rent, utilities, and salaries.

Identification Codes

Unique codes used to identify and track items or information in various systems.

Balances

The amounts of money in accounts, whether they are liabilities, assets, or equity, at a specific point in time.