See attached. 5-46 Problem 5-46 (LO. 6)Parrot Corporation is a closely held company with accumulated E & P of $300,000 and current E & P of $350,000. Tom and Jerry arebrothers; each owns a 50% share in Parrot, and they share management responsibilities equally.What are the tax consequences of each of the following independent transactions involving Parrot, Tom, and Jerry? How does eachtransaction affect Parrot's E & P?If an amount is zero, enter "0".a. Parrot sells an office building (adjusted basis of $350,000; fair market value of $300,000) to Tom for $275,000.Parrot has is a $realizedof which $is recognized. In addition, there is a $constructive dividend. As a result, E & P isby $b. Parrot lends Jerry $250,000 on March 31 of this year. The loan is evidenced by a note and is payable on demand. No interest is chargedon the loan (the current applicable Federal interest rate is 3%. Use months, not days in your computation and round your finalanswer to the nearest dollar.)Parrot hasin the amount of $and is deemedJerry in the amount ofAs a result, there isin E & P.c. Parrot owns an airplane that it leases to others for a specified rental rate. Tom and Jerry also use the airplane for personal use and payno rent. During the year, Tom used the airplane for 120 hours, and Jerry used it for 160 hours. The rental value of the airplane is $350 perhour, and its maintenance costs average $80 per hour.Tom hasof $and Jerry hasof $. As a result, E & P isby $d. Tom leases equipment to Parrot for $20,000 per year. The same equipment can be leased from another company for $9,000 per year.Tom hasin the amount of $As a result, E & P isby $

Answered: Parrot Corporation is a closely held…

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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See attached. 5-46

Problem 5-46 (LO. 6)
Parrot Corporation is a closely held company with accumulated E & P of $300,000 and current E & P of $350,000. Tom and Jerry are
brothers; each owns a 50% share in Parrot, and they share management responsibilities equally.
What are the tax consequences of each of the following independent transactions involving Parrot, Tom, and Jerry? How does each
transaction affect Parrot's E & P?
If an amount is zero, enter "0".
a. Parrot sells an office building (adjusted basis of $350,000; fair market value of $300,000) to Tom for $275,000.
Parrot has is a $
realized
of which $
is recognized. In addition, there is a $
constructive dividend. As a result, E & P is
by $
b. Parrot lends Jerry $250,000 on March 31 of this year. The loan is evidenced by a note and is payable on demand. No interest is charged
on the loan (the current applicable Federal interest rate is 3%. Use months, not days in your computation and round your final
answer to the nearest dollar.)
Parrot has
in the amount of $
and is deemed
Jerry in the amount of
As a result, there is
in E & P.
c. Parrot owns an airplane that it leases to others for a specified rental rate. Tom and Jerry also use the airplane for personal use and pay
no rent. During the year, Tom used the airplane for 120 hours, and Jerry used it for 160 hours. The rental value of the airplane is $350 per
hour, and its maintenance costs average $80 per hour.
Tom has
of $
and Jerry has
of $
. As a result, E & P is
by $
d. Tom leases equipment to Parrot for $20,000 per year. The same equipment can be leased from another company for $9,000 per year.
Tom has
in the amount of $
As a result, E & P is
by $

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Realized loss : Basis – Fair market Value : $350,000 - $300,000 = $50,000. But it cannot be recognized by the parrot corporation due to the section 267. But E&P for Parrot Corporation would be reduced by $75,000 ($50,000 + $25,000)

Constructive Dividend = Fair market value – Selling Price to Tom = $300,000 - $275,000 = $25,000

Parrot has is a ($50,000) realized loss of which $0 is recognized. In additions, there is a $25,000 constructive dividend. As a result, E&P is reduced by $75,000.

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