Austin Company Reports Positive Current E&P of $200,000 and Negative

question 97

Essay

Austin Company reports positive current E&P of $200,000 and negative accumulated E&P of $300,000. Austin distributed $250,000 to its sole shareholder, Betsy Bevo, on December 31, 20X3. Betsy' tax basis in her stock is $125,000. How much of the $250,000 distribution is treated as a dividend to Betsy and what is her tax basis in Austin stock after the distribution?

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Definitions:

Operating Expenses

All the costs associated with the day-to-day operations of a business, excluding the direct costs of producing goods and services.

Current Liabilities

Short-term financial obligations that are due within one year or within the normal operating cycle of a business, including accounts payable, short-term loans, and taxes payable.

Indirect Costs

Expenses not directly tied to the production of goods or services, such as rent, utilities, and administrative salaries.

Manufacturing Environment

The setting or conditions within which manufacturing processes take place, including the tools, machinery, and workforce involved.