Aaron and Michele, Equal Shareholders in Cavalier Corporation, Receive $25,000

question 68

Multiple Choice

Aaron and Michele, equal shareholders in Cavalier Corporation, receive $25,000 each in distributions on December 31 of the current year. During the current year, Cavalier sold an appreciated asset for $60,000 (basis of $15,000) . Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 6 percent. Before considering the effect of the asset sale, Cavalier's current year E & P is $40,000 and it has no accumulated E & P. How much of Aaron's distribution will be taxed as a dividend?

• A) $0
• B) $20,000
• C) $25,000
• D) $42,500
• E) None of the above

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Definitions:

Chi-Square Test

A statistical test used to determine the significance of an observed association between two categorical variables.

Statistical Test

A method used to determine the significance or importance of data differences or relationships through mathematical calculations.

Independent Variables

Factors in an experiment that are intentionally varied to observe their impact on other variables, essentially the same as an independent variable but rephrased.

One-Way Analysis

Often refers to one-way analysis of variance (ANOVA), a statistical method used to compare the means of three or more samples using variances.