Heather, an individual, owns all of the outstanding stock in Silver Corporation. Heather purchased her stock in Silver nine years ago, and her basis is $56,000. At the beginning of this year, the corporation has $76,000 of accumulated E & P and no current E & P (before considering the effect of the distributions as noted below). What are the tax consequences to Heather (amount and type of income and basis in property received) and Silver Corporation (gain or loss and effect on E & P) in each of the following situations? A. Silver distributes land to Heather. The land was held as an investment and has a fair market value of $54,000 and an adjusted basis of $42,000. B Assume that Silver Corporation has no current or accumulated E & P prior to the distribution. How would your answer to part (a) change? C. Assume that the land distributed in part (a) is subject to a $46,000 mortgage (which Heather assumes). How would your answer change? D. Assume that the land has a fair market value of $54,000 and an adjusted basis of $62,000 on the date of the distribution. How would your answer to part (a) change? E. Instead of distributing land in part (a), assume that Silver decides to distribute equipment used in its business. The equipment has a $14,000 market value, a $1,200 adjusted basis for income tax purposes, and a $5,200 adjusted basis for E & P purposes. When the equipment was purchased four years ago, its original fair market value was $18,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Heather, an individual, owns all of the outstanding stock in Silver Corporation. Heather purchased her stock in Silver nine years ago, and her basis is $56,000. At the beginning of this year, the corporation has $76,000 of accumulated E & P and no current E & P (before considering the effect of the distributions as noted below). What are the tax consequences to Heather (amount and type of income and basis in property received) and Silver Corporation (gain or loss and effect on E & P) in each of the following situations? A. Silver distributes land to Heather. The land was held as an investment and has a fair market value of $54,000 and an adjusted basis of $42,000. B Assume that Silver Corporation has no current or accumulated E & P prior to the distribution. How would your answer to part (a) change? C. Assume that the land distributed in part (a) is subject to a $46,000 mortgage (which Heather assumes). How would your answer change? D. Assume that the land has a fair market value of $54,000 and an adjusted basis of $62,000 on the date of the distribution. How would your answer to part (a) change? E. Instead of distributing land in part (a), assume that Silver decides to distribute equipment used in its business. The equipment has a $14,000 market value, a $1,200 adjusted basis for income tax purposes, and a $5,200 adjusted basis for E & P purposes. When the equipment was purchased four years ago, its original fair market value was $18,000.

LO.1, 5 Heather, an individual, owns all of the outstanding stock in Silver
Corporation. Heather purchased her stock in Silver nine years ago, and her basis is
$56,000. At the beginning of this year, the corporation has $76,000 of accumulated E
& P and no current E & P (before considering the effect of the distributions as noted
below). What are the tax consequences to Heather (amount and type of income and
basis in property received) and Silver Corporation (gain or loss and effect on E & P)
in each of the following situations?
a. Silver distributes land to Heather. The land was held as an investment and has
a fair market value of $54,000 and an adjusted basis of $42,000.
b. Assume that Silver Corporation has no current or accumulated E & P prior to
the distribution. How would your answer to part (a) change?
c. Assume that the land distributed in part (a) is subject to a $46,000 mortgage
(which Heather assumes). How would your answer change?
d. Assume that the land has a fair market value of $54,000 and an adjusted basis
of $62,000 on the date of the distribution. How would your answer to part (a)
change?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions