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

question 21

Multiple Choice

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2016.Accumulated earnings and profits are $80,000 as of January 1,2016.Current earnings and profits for 2016 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:

Concrete Operational

A stage in Piaget's theory of cognitive development where children aged 7-12 years can logically think about concrete events.

Sensorimotor

A stage in Jean Piaget's theory of cognitive development where infants from birth to about 2 years old understand the world through sensory experiences and their motor actions.

Concrete Operational

A stage in Piaget's theory of cognitive development, where children aged 7-12 start to think logically about concrete events and understand the concept of conservation.

Sensorimotor

Pertaining to the developmental stage in infants where they learn to perceive and interact with the world through their senses and motor actions.