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

question 36

Multiple Choice

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2018. Accumulated earnings and profits are $80,000 as of January 1, 2018. Current earnings and profits for 2018 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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