Tracy and Lance, Equal Shareholders in Macaw Corporation, Receive $600,000

question 85

Multiple Choice

Tracy and Lance, equal shareholders in Macaw Corporation, receive $600,000 each in distributions on December 31 of the current year. Macaw's current year taxable income is $1 million and it has no accumulated E & P. Last year, Macaw sold an appreciated asset for $1,200,000 (basis of $400,000) . Payment for one-half of the sale of the asset was made this year. How much of Tracy's distribution will be taxed as a dividend?

• A) $0
• B) $300,000
• C) $500,000
• D) $600,000
• E) None of the above

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, who are known as shareholders, and has its own rights and obligations.

Financial Reports

Documents that provide an overview of a company's financial condition, including income statements, balance sheets, and cash flow statements.

Timeliness

The importance of making or delivering something within an expected time frame for it to be relevant or useful.

Decision Making

is the process of selecting a course of action from multiple alternatives to achieve a specific objective.