Total Corporation Has Earned $75,000 Current E&P and Has an Accumulated

question 43

Multiple Choice

Total Corporation has earned $75,000 current E&P and has an accumulated E&P deficit from prior year of $25,000.The corporation pays a $100,000 distribution to shareholders.Shareholders of the corporation have a total stock basis of $40,000.The tax results of the distributions to the shareholders will be

• A)dividend income of $75,000 and tax-free return of capital of $25,000.
• B)dividend income of $50,000,tax-free return of capital of $40,000 and capital gain of $10,000.
• C)dividend income of $100,000.
• D)dividend income of $60,000 and tax-free return of capital of $40,000.

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Definitions:

Instructions

Directions or orders given for the purpose of guiding actions or procedures.

Agent

A person appointed to act for another, usually in contract matters.

Agency by Estoppel

A form of agency created when a principal's actions lead a third party to believe that an agent has authority, obliging the principal to honor the agent's commitments.

Statute of Frauds

A legal principle that requires certain types of contracts to be written and signed.