General Inertia Corporation Made a Distribution of $50,000 to Henry

question 90

Multiple Choice

General Inertia Corporation made a distribution of $50,000 to Henry Tiara in partial liquidation of the company on December 31, 20X3. Henry owns 500 shares (50%) of General Inertia. The distribution was in exchange for 250 shares of Henry's stock in the company. After the partial liquidation, Henry continued to own 50% of the remaining stock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Henry's income tax basis in the shares was $100 per share. General Inertia had total E&P of $800,000 at the time of the distribution. What are the tax consequences to Henry because of the transaction?

• A) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $100 per share.
• B) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $100 per share.
• C) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $200 per share.
• D) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $200 per share.

Understand the establishment and replenishment of a petty cash fund.

Recognize the importance of maintaining a minimum cash balance (compensating balances).

Understand the objectives and implementation of internal control systems.

Identify and apply adjustments for bank statement and company books in bank reconciliations.

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Definitions:

Large-Sample Z

A statistical test used for hypothesis testing or constructing confidence intervals when the sample size is large, typically using the Z-distribution.

Major Defects

Significant imperfections or flaws in a product, system, or process that adversely affect its performance, safety, or intended function.

Margin of Error

The amount of error allowed in the results of a survey, often expressed as a percentage.

Random Sample

A subset of individuals chosen from a larger set, where each individual has an equal chance of being selected.