Blue Corporation Has a Deficit in Accumulated E & P

question 160

Multiple Choice

Blue Corporation has a deficit in accumulated E & P of $300,000 and has current E & P of $225,000. On July 1, Blue distributes $250,000 to its sole shareholder, Sam, who has a basis in his stock of $52,500. As a result of the distribution, Sam has:

• A) Dividend income of $225,000 and reduces his stock basis to $27,500.
• B) Dividend income of $52,500 and reduces his stock basis to zero.
• C) Dividend income of $225,000 and no adjustment to stock basis.
• D) No dividend income, reduces his stock basis to zero, and has a capital gain of $250,000.
• E) None of the above.

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Definitions:

Combining Form

A form used in the construction of medical and scientific terminology, typically a root with a vowel at the end that allows it to be connected to other terms.

Tumor

An abnormal mass of tissue that forms when cells grow and divide more than they should or do not die when they should.

Malignant

Referring to a severe and progressively worsening condition, especially concerning tumors that are cancerous and can spread to other body parts.

Suffix

An affix placed at the end of a word or stem to modify its meaning.