Question :
1. On the last day of the year, Smith Corp builds a no liquidating distribution to Fred, its sole shareholder, of $110,000 in cash. The corporation's profits and earnings were $100,000 on the last day of the year. How much was the net dividend income received by the shareholder as a result of the distribution made by Smith Corpo?
a. 0.
b. $100,000 dividend.
c. $110,000 dividend.
d. None of the above.
2. Susan transferred property to her exclusively owned corporation, DA Inc. The property had an adjusted basis to Susan of $60,000 and a fair market value of $100,000 on the date of the transfer and the corporation supposed an $80,000 liability on the property. On the same day, and in exchange for the property she transferred to DA Inc., Susan gets a payment of $10,000 and 10 additional shares of SDA Inc.'s only class of stock. How much profit was recognized by Debra as a result of this transaction?
a. 0.
b. $10,000.
c. $20,000.
d. $30,000.
e. $40,000.
3. : Pat owned an equipment rental business in her sole name for 4 years. In January of 2013, Pat transferred the equipment to ABC Rental Corporation, a recently formed corporation. Pat gets all of the stock of ABC Rental Corporation in exchange for the equipment. At that time of the transfer of the equipment to ABC Rental Corporation, Pat's adjusted basis in the equipment was $50,000, the fair market value of the equipment was $150,000, the equipment was subject to a security agreement and note supposed by the corporation in the amount of $70,000, and there was depreciation recapture potential of $12,000. Pat received stock of ABC Rental Corporation worth $80,000.
How much profit did Pat recognize as a result of the transaction, and what was the character of the profit?
a. Pat recognized $12,000 of profit, all of which was ordinary income.
b. Pat recognized $20,000 of profit, at least $12,000 of which was ordinary income.
c. Pat recognized $30,000 of profit, at least $12,000 of which was ordinary income.
d. Pat recognized $100,000 of profit, all of which was ordinary income.
4. NOCO Inc. had existing earnings and profits of $150,000 when it made a no liquidating distribution to an individual shareholder of land that NOCO Inc. held for use in its business. On the date the land was distributed, NOCO Inc.'s adjusted beginning in the land was $120,000, the fair market value of the land was $160,000, and the land was encumbered by a $140,000 mortgage, which responsibility was considered by the shareholder. After the distribution, how much are NOCO Inc.'s profits and earning?
a. $130,000.
b. $150,000.
c. $160,000.
d. $170,000.
5. A tract of land was dispersed by WESTO Inc. to its sole shareholder, Steve, as a dividend. At that time of the distribution, WESTO Inc.'s adjusted basis in the land was $40,000, the fair market value of the land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of the subsequent statements is accurate?
a. WESTO Inc.'s earnings and profits have to be increased by $40,000 , the amount of the unrecognized profit, and decreased by $40,000 (the adjusted basis of the land), and increased by $55,000 (the amount of the liability).
b. None of the above statements is accurate.
6. SMTO Inc. had one class of stock outstanding. The one class of stock was owned 50 shares by Lana, 30 shares by Lana's mother, and 20 shares by Lana's grandmother. On 31st December, 2012, SMTO Inc. redeemed 20 of Lana's 50 shares, and in exchange for the stock, SMTO Inc. distributed to Lana a building that had an adjusted basis to SMTO Inc. of $10,000 and a fair market value of $50,000. Consider that SMTO Inc.'s existing earnings and profits were $200,000, there were no accumulated profits and earnings, and Lana's total basis in her stock before the redemption was $20,000. How much is Lana's basis in her remaining stock after the redemption, and evaluate her basis in the building?
a. Stock basis: $10,000; building basis: $10,000.
b. Stock basis: $10,000; building basis: $50,000.
c. Stock basis: $20,000; building basis: $10,000.
d. Stock basis: $20,000; building basis: $50,000.
e. None of the above.
7. Fun Inc. is a calendar year corporation. Fun Inc. had no accumulated profits and earnings, but had $100,000 of existing earnings and profits in 2012. On 31st December, 2012, Fun Inc. distributed a net of $160,000 to its two equal shareholders, Jon and Jean. On the date of the cash distribution, Jean's basis in her Fun Inc. stock was $10,000 and Jon's basis in his Fun Inc. stock was $30,000. Evaluate Jon's adjusted basis in his EFG Inc. stock after the distribution?
a. 0.
b. $5,000.
c. $15,000.
d. none of the above.
8. XYZ, Corp. owned 85 percent of ABC Corporation. XYZ Corp. received a liquidating distribution from ABC Corporation as part of the total liquidation of ABC Corporation. XYZ Corp.'s basis for its ABC Corporation stock was $10,000. In exchange for its stock, XYZ Corp. gets a payment of $15,000 and real property that had an adjusted basis to ABC Corporation of $10,000, a reasonable market value of $25,000, and that was encumbered by a $12,000 mortgage which XYZ Corp. considered. How much profit or loss did XYZ Corp. identify as a result of this transaction and what is XYZ Corp.'s basis in the real property?
a. $3,000 profit recognized, and basis in real property of $40,000.
b. $18,000 profit recognized, and basis in real property of $25,000.
c. $0 profit recognized, and basis in real property of $25,000.
d. $0 profit recognized, and basis in real property of $10,000.
e. $18,000 profit recognized, and basis in real property of $35,000.
9. Bob owns 60 %of CCorp. CCorp had acquired land defined as the Parcel in January of 2000 for $68,000 and held the Parcel for investment purposes. Through the existing taxable year, CCorp sold the Parcel to Bob for $65,000 which amount was equivalent to the fair market value of the Parcel. Shortly after receiving the Parcel, Bob, never having made any gifts before, gave the Parcel to his friend John from college when the property was worth $70,000. John sold the Parcel years later to Ann, a person not related to CCorp, Ann, Bob, or John, for $60,000. How much profit or loss is realized and recognized as a result of these three transfers?
a. CCorp realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Bob realizes a profit of $8,000 and recognizes a profit of 5,000 on the transfer to John; John recognizes and realizes a loss of $8,000 on the transfer to Ann.
b. CCorp realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Bob does not realize or recognize a profit or loss on the transfer to John; John realizes loss of $8,000 and recognizes a loss of $8,000 on the transfer to Ann.
c. CCorp realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Bob does not recognize or realize any profit or loss on the transfer to John; John recognizes and realizes a loss of $5,000 on the transfer to Ann.
d. CCorp realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Bob realizes a profit of $5,000 and recognizes a profit of $5,000 on the transfer to John; John recognizes and realizes a loss of $10,000 on the transfer to Ann.