Blue Corporation Distributes Property to Its Sole Shareholder, Zeke

question 41

Multiple Choice

Blue Corporation distributes property to its sole shareholder, Zeke. The property has a fair market value of $450,000, an adjusted basis of $305,000, and is subject to a liability of $250,000. Current E & P is $550,000. With respect to the distribution, Blue has a gain of:

• A) $200,000 and Zeke has dividend income of $450,000.
• B) $145,000 and Zeke's basis is the distributed property is $305,000.
• C) $200,000 and Zeke's basis in the distributed property is $450,000.
• D) $145,000 and Zeke has dividend income of $200,000.
• E) None of the above.

---

Definitions:

Sales Returns

are goods returned by customers to the seller for a refund or credit, representing a reversal of sales previously recorded.

Journal Entry

A record in the books of accounts that reflects the details of a financial transaction, including the accounts affected, date, and amounts.

Gross Accounts Receivable Approach

A method that estimates the total amount to be received from customers, without deducting expected bad debts.

Unadjusted Year End

The fiscal year-end date prior to any adjustments made for accounting purposes.