Question

In: Accounting

This year, Sooner Company reports current E&P of negative $478,000. Its accumulated E&P at the beginning...

This year, Sooner Company reports current E&P of negative $478,000. Its accumulated E&P at the beginning of the year was $392,000. Sooner distributed $784,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $120,000. (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.)

a. How much of the $784,000 distribution is treated as a dividend to Boomer?
b. What is Boomer’s tax basis in his Sooner stock after the distribution?
c. What is Sooner’s balance in accumulated E&P on the first day of next year?

Solutions

Expert Solution

(a). Boomer reports a dividend of $

He first computes accumulated E&P as of June 30. The deficit of current E&P is allocated pro rata on a daily basis. The deficit in current E&P on june 30 is Negative $ 2,37,036 computed as ( $ 478000/365*181 days)

Therefore Accumulated E&P of June 30 is = $ 154964 (ie, $392000 - $237036)

(b). Boomers tax basis in sooners stock is $0, which is his beginning tax basis iof $2,00,000 Less the lesser of the distribution in excess of the accumulated E&P ($629036) or his basis in the sooner stock ($200000). The remaining $429036 is treated as gain from sale of stock

©Sooner’s balance in accumulated E&P on the first day of next year is computed as follows

Accumulated E&P, Beginning of the year                      $ 3,92,000

Add/(Less) : Current E&P                                              ($ 4,78,000)

Add : Dividend Paid                                                      $ 1,54,964

So, Accumulated E&P at the end of the year              $ 68,964              


Related Solutions

This year, Sooner Company reports current E&P of negative $426,000. Its accumulated E&P at the beginning...
This year, Sooner Company reports current E&P of negative $426,000. Its accumulated E&P at the beginning of the year was $264,000. Sooner distributed $528,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $124,500. (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) a. How much of the $528,000 distribution is treated as a dividend to Boomer? Dividend = b. What...
This year, Sooner Company reports current E&P of negative $424,000. Its accumulated E&P at the beginning...
This year, Sooner Company reports current E&P of negative $424,000. Its accumulated E&P at the beginning of the year was $354,000. Sooner distributed $708,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $122,500. a. How much of the $708,000 distribution is treated as a dividend to Boomer? Dividend $142,000 b. What is Boomer’s tax basis in his Sooner stock after the distribution? Tax basis $0 c. What is...
This year, Sooner Company reports current E&P of negative $300,000. Its accumulated E&P at the beginning of the year was $200,000.
This year, Sooner Company reports current E&P of negative $300,000. Its accumulated E&P at the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $75,000. (Leave no answer blank. Enter zero if applicable. Negative amounts should be indicated by a minus sign.) a. How much of the $400,000 distribution is treated as a dividend to Boomer? Dividend? b. What is...
This year, Sooner Company reports a deficit in current E&P of ($362,000). Its accumulated E&P at...
This year, Sooner Company reports a deficit in current E&P of ($362,000). Its accumulated E&P at the beginning of the year was $270,000. Sooner distributed $540,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution is $101,500. (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) a) How much of the $540,000 distribution is treated as a dividend to...
This year, Sooner Company reports a deficit in current E&P of ($478,000). Its accumulated E&P at...
This year, Sooner Company reports a deficit in current E&P of ($478,000). Its accumulated E&P at the beginning of the year was $392,000. Sooner distributed $784,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock before the distribution is $120,000. (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) c. What is Sooner’s balance in accumulated E&P on the first day of...
Elk Company reports negative current E&P of $270,000 and positive accumulated E&P of $440,000. Elk distributed...
Elk Company reports negative current E&P of $270,000 and positive accumulated E&P of $440,000. Elk distributed $340,000 to its sole shareholder, Barney Rubble, on December 31, 20X3. Barney's tax basis in his Elk stock is $127,500. What is the tax treatment of the distribution to Barney and what is his tax basis in Elk stock after the distribution?
Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current...
Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current E&P is $20,000. During the year, the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. Date Amount Distributed April 1 $20,000 June 1 20,000 August 1 15,000 November 1     5,000 The treatment of the $15,000 August 1 distribution would be Group of answer choices $5,000 is taxable as a dividend from current E&P, and...
5. Speed Corporation has current E&P of $200,000 and accumulated E&P of $100,000. It makes a...
5. Speed Corporation has current E&P of $200,000 and accumulated E&P of $100,000. It makes a distribution of land to its shareholder Bill. Bill’s stock basis is $600,000. The land was purchased by Speed two years ago for $400,000 and at the time of the distribution has FMV of $550,000.   Bill owns 75 shares, his sister owns 10 shares and the remaining 15 shares are owned by an unrelated party. (7 points) What are the tax consequences to Speed and...
A calendaryear corporation has a​ $75,000 current​ E&P amount, and a​ $25,000 positive accumulated​ E&P balance...
A calendaryear corporation has a​ $75,000 current​ E&P amount, and a​ $25,000 positive accumulated​ E&P balance at the beginning of the year. Shareholders of the corporation have a total basis in outstanding shares of​ $40,000. The corporation pays a​ $120,000 distribution to the shareholders. The tax results to the shareholders will be A. dividend income of​ $60,000 and capital gain of​ $60,000. B. dividend income of​ $100,000 and capital gain of​ $20,000. C. dividend income of​ $100,000 and a tax...
31.Smith Co. has no E&P, current or accumulated, prior to the following independent transactions with its...
31.Smith Co. has no E&P, current or accumulated, prior to the following independent transactions with its sole shareholder, Chris: a.Distribution of LIFO inventory with a basis of $7,000, a FIFO value of $11,000, and a market value of $13,000. b.Distribution of land with a basis of $21,000, a mortgage of $34,000, and a value of $58,000. c.Sale of property to Chris for $20,000 (basis $5,000, value $25,000). d.Does Chris have to recognize any income? e.Does Smith Co. have any gains...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT