Adam owns 100% of Banana Company and has a basis of $60,000 in its stock. The company has earnings and profits of $54,000 and distributes a cash dividend to Adam of $72,000. Adam has a: Capital gain of $12,000. Nontaxable distribution of $6,000. Nontaxable distribution of $18,000. Dividend of $72,000.

Adam owns 100% of Banana Company and has a basis of $60,000 in its stock. The company has earnings and profits of $54,000 and distributes a cash dividend to Adam of $72,000. Adam has a: Capital gain of $12,000. Nontaxable distribution of $6,000. Nontaxable distribution of $18,000. Dividend of $72,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Adam owns 100% of Banana Company and has a basis of $60,000 in its stock. The company has earnings and profits of $54,000 and distributes a cash dividend to Adam of $72,000. Adam has a:

		Capital gain of $12,000.
		Nontaxable distribution of $6,000.
		Nontaxable distribution of $18,000.
		Dividend of $72,000.

Definition Definition Increase in the value of a capital asset and the amount that is realized when the asset is sold off. A capital gain may be short-term or long-term depending on the tenure for which the asset is held.

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