Beaver Company Reports Current E&P of $100,000 in Year 1

question 9

Multiple Choice

Beaver Company reports current E&P of $100,000 in year 1 and accumulated E&P at the beginning of the year of $200,000. Beaver distributed $400,000 to its sole shareholder on January 1, year 1. The shareholder's tax basis in her stock in Beaver is $200,000. How is the distribution treated by the shareholder in year 1?

• A) $400,000 dividend
• B) $100,000 dividend, $200,000 tax-free return of basis, and $100,000 capital gain
• C) $200,000 dividend and $200,000 tax-free return of basis
• D) $300,000 dividend and $100,000 tax-free return of basis

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Definitions:

Costs of Delay

The negative consequences, such as financial losses or missed opportunities, resulting from postponing a decision or action.

Negotiation

The process by which two or more parties aim to reach an agreement on matters of mutual interest while attempting to maximize their own outcomes.

Hardball Tactics

Aggressive or uncompromising strategies employed in negotiations or conflicts.

Risks

Potential for loss, harm, or other adverse effects resulting from internal or external vulnerabilities, and the possibility that the outcome may differ from expectations.