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Yellow Corporation has a deficit in accumulated E & P of $600,000 and has a current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole shareholder, Eugene, who has a basis in his stock of $105,000. As a result of the distribution, Eugene has: A. dividend income of $450,000 and no adjustment to stock basis. B. dividend income of $105,000 and reduces his stock basis to zero. C. dividend income of $450,000 and reduces his stock basis to $55,000. D. no dividend income reduces his stock basis to zero and has a capital gain of $500,000. E. None of the above.

Yellow Corporation has a deficit in accumulated E & P of $600,000 and has a current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole shareholder, Eugene, who has a basis in his stock of $105,000. As a result of the distribution, Eugene has: A. dividend income of $450,000 and no adjustment to stock basis. B. dividend income of $105,000 and reduces his stock basis to zero. C. dividend income of $450,000 and reduces his stock basis to $55,000. D. no dividend income reduces his stock basis to zero and has a capital gain of $500,000. E. None of the above.

FINANCIAL ACCOUNTING
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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Yellow Corporation has a deficit in accumulated E & P of $600,000 and has a current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole shareholder, Eugene, who has a basis in his stock of $105,000. As a result of the distribution, Eugene has: A. dividend income of $450,000 and no adjustment to stock basis. B. dividend income of $105,000 and reduces his stock basis to zero. C. dividend income of $450,000 and reduces his stock basis to $55,000. D. no dividend income reduces his stock basis to zero and has a capital gain of $500,000. E. None of the above.
Transcribed Image Text:Yellow Corporation has a deficit in accumulated E & P of $600,000 and has a current E & P of $450,000. On July 1, Yellow distributes $500,000 to its sole shareholder, Eugene, who has a basis in his stock of $105,000. As a result of the distribution, Eugene has: A. dividend income of $450,000 and no adjustment to stock basis. B. dividend income of $105,000 and reduces his stock basis to zero. C. dividend income of $450,000 and reduces his stock basis to $55,000. D. no dividend income reduces his stock basis to zero and has a capital gain of $500,000. E. None of the above.
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