Montclair Corporation Had Current and Accumulated E&P of $500,000 at December

question 108

Multiple Choice

Montclair Corporation had current and accumulated E&P of $500,000 at December 31,year 1.On December 31,the company made a distribution of land to its sole shareholder,Molly Pitcher.The land's fair market value was $200,000 and its tax and E&P basis to Montclair was $50,000.Molly assumed a liability of $25,000 attached to the land.The tax consequences of the distribution to Montclair in year 1 would be (assume a 0 percent marginal tax rate for Montclair) :

• A)No gain recognized and a reduction in E&P of $200,000.
• B)$150,000 gain recognized and a reduction in E&P of $200,000.
• C)$150,000 gain recognized and a reduction in E&P of $175,000.
• D)No gain recognized and a reduction in E&P of $175,000.

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Definitions:

Free Cash Flow

The amount of cash generated by a business after accounting for operational expenses and capital expenditures, available for distribution among stakeholders.

Operating Activities

Activities that are directly related to the operation of the business, such as selling, managing, and producing goods and services.

Capital Expenditures

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.

Direct Method

A costing approach where only direct costs are charged to a cost object, typically excluding overhead or indirect costs.