Answered: ofits of $200,000 and current earnings…

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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Rock Corporation distributed property with a fair market value of $100,000 and an adjusted basis of $70,000 to Ann, a shareholder of Rock Corporation. Prior to the distribution, Rock Corporation had a deficit in accumulated earnings and profits of $200,000 and current earnings and profits of $20,000. Ann has stock basis in Rock Corporations of $90,000.

Assume instead that Ann is a C corporation (Ann, Inc.) and that Ann, Inc. has a 15% interest in Rock Corporation. Determine the tax liability of Ann, Inc. on this distribution of property.

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