How much of this distribution  to Emma is dividend, return of capital, and/or capital gain?  What is Emma's 2021 tax liability for this distribution?   Assume instead that Emma is Emma Corporation (a C corporation).  Emma Corporation owns 25% of Elko Corporation.  What tax liability will Emma Corporation have on the distribution (assume that Emma Corporation has significant income in addition to this distribution from Elko).

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

In 2021, Elko, Inc. has $200,000 in accumulated earnings and profits and $(180,000) in current earning and profits.  On December 31, 2021, Elko distributes $ 60,000 to Emma, an individual.  Emma has stock basis of $5,000 in her Elko stock and is in the 32% tax bracket.  Emma does not have any capital gains or losses from the sale of assets.

Determine: 

How much of this distribution  to Emma is dividend, return of capital, and/or capital gain?

 What is Emma's 2021 tax liability for this distribution?
 
Assume instead that Emma is Emma Corporation (a C corporation).  Emma Corporation owns 25% of Elko Corporation.  What tax liability will Emma Corporation have on the distribution (assume that Emma Corporation has significant income in addition to this distribution from Elko).
Expert Solution
steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Corporate Distributions and Adjustments
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
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education