Oreo Corporation Has Accumulated E&P of $8,000 at the Beginning

question 74

Multiple Choice

Oreo Corporation has accumulated E&P of $8,000 at the beginning of the current year. During the year (a nonleap year) , the corporation incurs a current E&P deficit of $18,250. The corporation distributes $11,000 on March 20th to Morris, its sole shareholder, who has a $9,000 basis for his stock. If the exact loss cannot be determined as of the date of distribution, the treatment of the distribution will be

• A)$4,100 dividend and a $6,900 capital gain.
• B)$11,000 return of capital.
• C)$4,100 dividend and a $6,900 tax free return of capital.
• D)$8,000 dividend and a $3,000 return of capital.

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Definitions:

Capital

The wealth, whether in money or assets, used in the production of more wealth.

Isocost Line

A graph line that shows all possible combinations of inputs that can be purchased with a given total cost.

Slope

A measure of the steepness, incline, or grade of a straight line, calculated as the ratio of the vertical change to the horizontal change between two points on the line.

Capital

Resources, such as funds, equipment, and buildings, that are used in the production of goods and services.