If a Distribution by a Corporation to a Shareholder Exceeds

question 194

True/False

If a distribution by a corporation to a shareholder exceeds the corporation's earnings and profits,the excess first reduces the shareholder's stock basis to zero and any remaining excess is classified as capital gain or ordinary income depending on the shareholder's holding period for the stock.

---

Definitions:

Flotation Cost

The total costs associated with issuing new stocks or bonds, including underwriting, legal, and registration fees.

Debt-Equity Ratio

A calculation of a corporation's financial risk, determined by dividing its overall liabilities by the equity of its shareholders.

Initial Cash Outlay

The initial funds required to commence a project or investment, typically including costs such as purchase price and setup expenses.

Pre-Tax Cost

The expense or cost of an item or service before any taxes are applied.