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 hasnet income of $41,450. The income is credited to the earnings and profits account of the corporation. The corporation distributes $12,435to Chaz.If an amount is zero, enter "0".a. How do Chaz and the corporation treat the $12,435 distribution?Chaz has aof $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 yearto Chaz. However, at the end of the year, the corporation pays an amount to meet the loan obligation (i.e., the annual $8,290 principalpayment 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 $

Tax deduction:Tax deduction is the amount that is subtracted from the gross total income to reduce…

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.

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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1
Wineseller Corporation is owned by Mortimer Smith, its sole shareholder. Mortimer has a $20,000 basis in his Wineseller Corporation stock. Mortimer is in the 37% tax bracket. Wineseller Corporation is in the 21% tax bracket. Wineseller Corporation has the following balances as of December 31, 2021. Accumulated Earnings and Profits (AEP) ($600,000) Current Earnings and Profits $ 70,000 On December 31, 2021, Wineseller Corporation distributes $160,000 to Mortimer. What are the tax consequences to Mortimer from receiving this distribution from Wineseller Corporation?
Indigo Corporation has $15,000 AEP and CEP of $30,000. Renee, the sole shareholder of Indigo Corporation, sold all her stock of Indigo to Chad on July 1 for $180,000. Renee's stock basis at the beginning of the year was $125,000. Indigo made a $60,000 cash distribution to Renee immediately before the sale and Chad received a $140,000 cash distribution from Indigo on November 1. Which of the following statements is correct? Select one: a. Renee recognizes a $91,000 gain on the sale of the stock. b. Renee recognizes a $84,000 gain on the sale of the stock. c. Chad recognizes dividend income of $21,000 and his stock basis is $61,000 d. Both a and c. are correct. e. None of these.
(3) Brown transfers Blackacre to XYZ Corp., a newly formed corporation, in exchange for 140 shares of its common stock having a FMV of $70,000. Blackacre had a basis in Brown's hands of $10,000. At the same time the remaining 60 shares of the stock of XYZ is issued to Green in exchange for $500 of cash and her promise to manage Blackacre. (a) What are the tax consequences to the Brown, Green and XYZ Corp.? (b) Would your answer change if Green contributed $4,000 of cash in addition to her promise to manage Blackacre?
A calendar year S corporation reports an ordinary loss of $80,000 and a capital loss of $20,000. Mei Freiberg owns 30% of the corporate stock and has a $24,000 basis in her stock. She has asked that you determine the amounts of the ordinary loss and capital loss, if any, that flow through to Freiberg. Since her basis in the stock is $24,000, $fill in the blank 5is deductible. Thus, $fill in the blank 6of the operating loss and $fill in the blank 7of the capital loss is deducted currently by Freiberg.
Rare Corporation has accumulated E&P of $2,000,000. The corporation has 1,000 shares of common stock outstanding and owned by unrelated parties as follows: Julie, 500 shares and Jim, 500 shares. Julie and Jim each paid $200 per share for Rare stock 15 years ago. At the end of the year, Rare distributes securities (fair market value $250,000 and adjusted basis of $140,000) to Julie in redemption of 200 share of her stock. How much tax will Julie owe as a result of the redemption? Assume Julie is in the 37% tax bracket.
At a point when Robin Corporation has been in existence for six years, share- holder Ted transfers real estate (adjusted basis of $20,000 and fair market value of $100,000) to the corporation for additional stock. At the same time, Peggy, the other shareholder, acquires one share of stock for cash. After the two transfers, the percentages of stock ownership are as follows: 79% by Ted and 21% by Peggy. What were the parties trying to accomplish? Will it work? Explain.
CB Corporation was formed as a calendar-year S corporation. Casey is a 60 percent shareholder and Bryant is a 40 percent shareholder. On September 30, 2020, Bryant sold his CB shares to Don. CB reported business income for 2020 as follows: (Assume that there are 365 days in the year.) Period Income January 1 through September 30 (273 days) $ 221,900 October 1 through December 31 (92 days) 551,900 January 1 through December 31 $ 773,800 How much 2020 income is allocated to each shareholder if CB Corporation uses the daily method of allocating income?
Sweeney originally contributed $302,000 in cash for a one-fourth interest in the Gilbert LLC. During the several years that Sweeney was a member of the LLC, his share of the LLC's income was $181,200 and he withdrew $120,800 cash. The LLC's liabilities are $151,000, of which Sweeney's share is $37,750. The LLC has $75,500 of hot assets, of which Sweeney's share is $18,875. Sweeney sells his LLC interest to Jana for $398,640 cash, with Jana also assuming Sweeney's share of the LLC's liabilities. How much is Sweeney's gain on the sale, and what is its character? Sweeney's total gain on the sale is $ 35,000 X , of which $ 15,000 x recognized as ordinary income, with the remaining $ 20,000 X recognized as a long-term capital gain. How much is Jana's adjusted basis for her LLC interest? 245,000 X
Eight years ago, SW purchased 1,000 shares of Delta stock. On May 20 of the current year, it sold these shares for $90 per share. Required: In each case in which SW purchased 1,200 Delta shares, compute its tax basis in the shares. b. SW's cost basis in the 1,000 shares was $104 per share. It purchased 1,200 shares of Delta on. May 1 for $92 per share. c. SW's cost basis in the 1,000 shares was $104 per share. It purchased 1,200 shares of Delta on June 8 for $92 per share. d. SW's cost basis in the 1,000 shares was $79 per share. It purchased 1,200 shares of Delta on June 8 for $92 per share. b. C. d. Tax basis
14. Sam and Devon agree to go into business together selling college-licensed clothing. According to the agreement, Sam will contribute inventory valued at $100,000 in return for 80 percent of the stock in the corporation. Sam’s tax basis in the inventory is $60,000. Devon will receive 20 percent of the stock in return for providing accounting services to the corporation (these qualify as organizational expenditures). The accounting services are valued at $25,000. (Negative amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) Assume Devon received 25 percent of the stock in the corporation in return for his services. What is Devon’s tax basis in the stock he receives in return for his contribution of services to the corporation? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)
WRT, a calendar year S corporation, has 100 shares of outstanding stock. At the beginning of the year, Mr. Wallace owned all 100 shares. On September 30, he gave 25 shares to his brother and 40 shares to his daughter. WRT's ordinary income for the year was $208,000. Required: What portion of this income must each shareholder include in income? Note: Assume 365 days in a year. Round income per day of ownership to 4 decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amount. Brother's income Daughter's income Mr. Wallace's income Amount