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

question 19

Multiple Choice

Cavalier 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,Tom Jefferson.The land's fair market value was $200,000 and its tax and E&P basis to Cavalier was $50,000.The tax consequences of the distribution to Cavalier in year 1 would be (assume a 0 percent marginal tax rate for Cavalier) :

• 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 $50,000.
• D)No gain recognized and a reduction in E&P of $50,000.

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