Longhorn Company Reports Current E&P of $100,000 in 20X3 Anda

question 112

Multiple Choice

Longhorn Company reports current E&P of $100,000 in 20X3 anda deficit of ($200,000) in accumulated E&P at the beginning of the year. 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)$100,000 dividend, $100,000 tax-free return of basis, and $100,000 capital gain
• C)$100,000 dividend and $200,000 tax-free return of basis
• D)$0 dividend, $100,000 tax-free return of basis, and $200,000 capital gain

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Definitions:

Negligence

The failure to exercise the care that a reasonably prudent person would exercise in like circumstances, leading to unintended harm or damage.

Unusual Circumstances

Situations that are not common or expected and often require special consideration or handling.

Prove

To establish the truth or validity of something through evidence or argument.

Tortious Act

A wrongful action causing harm or injury to another, leading to civil legal liability outside of breach of contract.