Longhorn Company Reports Current E&P of $115,000 in 20X3 and a Deficit

question 76

Multiple Choice

Longhorn Company reports current E&P of $115,000 in 20X3 and a deficit of ($230,000) in accumulated E&P at the beginning of the year. Longhorn distributed $345,000 to its sole shareholder on January 1, 20X3. The shareholder's tax basis in his stock in Longhorn is $115,000. How is the distribution treated by the shareholder in 20X3?

• A) $345,000 dividend
• B) $115,000 dividend, $115,000 tax-free return of basis, and $115,000 capital gain
• C) $115,000 dividend and $230,000 tax-free return of basis
• D) $0 dividend, $115,000 tax-free return of basis, and $230,000 capital gain

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Definitions:

Segment Margin

A segment’s contribution margin less its traceable fixed costs. It represents the margin available after a segment has covered all of its own traceable costs.

Special Equipment

Custom or unique machinery, tools, or apparatus required for specific tasks or production processes not typically found in generic manufacturing settings.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor.

Segment Margin

refers to the profit generated by a specific segment of a business, considering both direct and indirect costs attributed to that segment.