Aaron and Michele, Equal Shareholders in Cavalier Corporation, Receive $25,000

question 68

Multiple Choice

Aaron and Michele, equal shareholders in Cavalier Corporation, receive $25,000 each in distributions on December 31 of the current year. During the current year, Cavalier sold an appreciated asset for $60,000 (basis of $15,000) . Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 6 percent. Before considering the effect of the asset sale, Cavalier's current year E & P is $40,000 and it has no accumulated E & P. How much of Aaron's distribution will be taxed as a dividend?

• A) $0
• B) $20,000
• C) $25,000
• D) $42,500
• E) None of the above

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Definitions:

Expected Monetary Value

A calculation used in decision-making to determine the average outcome when the future includes scenarios that may or may not happen.

EOL Decision

A decision made regarding the end-of-life status of a product, system, or component, often concerning its discontinuation or phased out support.

Prior Probabilities

Probabilities that represent the degree of belief in a hypothesis before observing the current evidence, often used in Bayesian statistics to update beliefs after new data is obtained.

Gross Profits

The difference between the revenue a company earns from selling its products or services and the cost of goods sold.