Elvis Owns All of the Stock of White Corporation

question 74

Multiple Choice

Elvis owns all of the stock of White Corporation. The accumulated earnings and profits of White Corporation at the beginning of the year are a deficit of $20,000. The current earnings and profits are $30,000. Elvis' basis for his stock is $250,000. He receives a distribution of $300,000 on the last day of the tax year. How much dividend income and/or capital gain should Elvis report?

• A)$0.
• B)Dividend income of $30,000 and capital gain of $20,000.
• C)Dividend income of $30,000 and capital gain of $0.
• D)Dividend income of $10,000 and capital gain of $20,000.
• E)None of the above.

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Definitions:

Estimated Bad Debts

A provision for accounts receivable that are not expected to be collected.

Net Income

The total earnings of a company after deducting all expenses, taxes, and costs from its total revenues, indicating the company's profitability.

Liabilities

Financial obligations or debts that a company owes to others, due to past transactions or events.

Net Assets

The residual interest in the assets of an entity after deducting its liabilities, essentially representing the owners' equity.