Sylvia Owns 25% of Cormorant Corporation

question 165

Essay

Sylvia owns 25% of Cormorant Corporation. Cormorant sells diamonds to retail jewelry businesses. While Cormorant has a deficit in accumulated E & P of $56,000 at the beginning of the year, its current E & P is $500,000. Since the company had a successful year, Cormorant pays a $36,000 distribution to each of the company's four shareholders on December 15. Three shareholders receive cash, but Cormorant distributes a diamond (adjusted basis of $40,000 and a fair market value of $36,000) to Sylvia in lieu of cash. Determine the effect of distributing the diamond on Cormorant's and on Sylvia's taxable income. What is Sylvia's basis in the diamond? Was the distribution good tax planning on the part of Cormorant? Why or why not?

Understand the principles of stock appreciation rights (SARs) compensation plans and their measurement and exercise dates.

Calculate compensation expense related to stock appreciation rights (SARs) and stock options.

Interpret the accounting treatments for compensatory and performance-based stock option plans.

Analyze the impact of employee turnover on compensation expense calculations.

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Definitions:

Depressant

A substance that reduces the functional or nervous activity, often used to describe drugs that inhibit the central nervous system, leading to sedation or relaxation.

Alcohol

A psychoactive substance commonly found in beverages like beer, wine, and spirits, known for its intoxicating effects.

Central Nervous System

The part of the nervous system consisting of the brain and spinal cord, responsible for processing and transmitting information in the body.

Depressant

A substance that slows down the nervous system and can lead to decreased alertness, often used to treat insomnia, anxiety, or other mental health conditions.