The Serenity Corporation Distributes $200,000 in Cash to Its Shareholder

question 56

Multiple Choice

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2017.Accumulated earnings and profits are $80,000 as of January 1,2017.Current earnings and profits for 2017 are $84,000.Jonas,the sole shareholder of Serenity Corporation,has a basis of $48,000 in his stock.What is the tax effect of the distribution for Jonas?

• A)Jonas will recognize ordinary income of $164,000 and a capital gain of $36,000.
• B)Jonas will recognize ordinary income of $84,000,capital gain of $80,000 and a tax-free recovery of capital of $36,000.
• C)Jonas will recognize ordinary income of $164,000 and a tax-free return of capital of $36,000.
• D)Jonas will recognize ordinary income of $164,000 and a capital loss of $12,000.
• E)Jonas will recognize ordinary income of $200,000 and a capital loss of $12,000.

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Definitions:

Complex Systems

Systems composed of interconnected parts that as a whole exhibit one or more properties not obvious from the properties of the individual parts.

Common Goals

Objectives shared by a group of individuals or organizations that provide a unified direction and foster collaboration.

Performance Efficiency

An input measure of resource cost associated with goal accomplishment.

Resource Cost

The total expense incurred in order to utilize a resource, including acquisition, maintenance, and any associated operational costs.