On January 2, Chaz transfers cash of $165,800 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has met income of $41,450. The income is credited to the earnings and profits account of the corporation. The corporation distributes $12,435 to Chaz.
On January 2, Chaz transfers cash of $165,800 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has met income of $41,450. The income is credited to the earnings and profits account of the corporation. The corporation distributes $12,435 to Chaz.
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter12: Corporations: Organization, Capital Structure, And Operating Rules
Section: Chapter Questions
Problem 6CE
Related questions
Question
Transcribed Image Text:On January 2, Chaz transfers cash of $165,800 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has
net income of $41,450. The income is credited to the earnings and profits account of the corporation. The corporation distributes $12,435
to Chaz.
If an amount is zero, enter "0".
a. How do Chaz and the corporation treat the $12,435 distribution?
Chaz has a
of $
and the corporation has a deduction of $
b. Assume, instead, that Chaz transfers to the corporation cash of $82,900 for stock and cash of $82,900 for a note of the same amount.
The note is payable in equal annual installments of $8,290 and bears interest at the rate of 6%. No distributions are made during the year
to Chaz. However, at the end of the year, the corporation pays an amount to meet the loan obligation (i.e., the annual $8,290 principal
payment plus the interest due).
Determine the total amount of the payment and its tax treatment to Chaz and the corporation.
The corporate payment to Chaz totals $
of which $
Chaz has interest of $
and a note repayment of $
is taxable to Chaz. The corporation has a deduction of $
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 1 images
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.Recommended textbooks for you