Maria Owns 75% and Christopher Owns 25% of Cockatoo Corporation

question 89

Essay

Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer. Cockatoo makes a
$600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1. Cockatoo's current
E & P is $120,000 and its accumulated E & P is $500,000. What are the tax implications of the distributions to Maria and Christopher?

---

Definitions:

Unrecognized Prior Service Cost

Costs not immediately recognized on the income statement related to retroactive benefits granted to employees in a pension plan amendment.

Straight-Line Method

A depreciation method that allocates an equal amount of depreciation each year over the useful life of the asset.

Defined Benefit Pension Plan

A type of pension plan where an employer commits to pay a specified pension amount to the retiree, based on factors like salary history and duration of employment.

Pension Expense

The company's cost in a specific period for providing pension benefits to employees during that period.