22) Boxer Corporation buysequipment in January of the current year with a 7-year class lifefor $15,000. The corporation expensed the $15,000 under Sec. 179.The deduction in the year of purchase for E&P purposes due tothe acquisition and expensing of the equipment is | A. $14,000 | | B. $15,000 | | C. $1,500 | | D. $3,000 | | |
23) Maxwell Corporation reportsthe following results:
| | Year | CurrentE&P | Distributions | | 2005 | $6,000 | $4,000 | | 2006 | 5,000 | 1,000 | | 2007 | 1,000 | -0- | | |
Maxwell's dividends-received deduction is | A. $5,000 | | B. $12,000 | | C. $0 | | D. $7,000 | | |
24) Identify which of thefollowing statements is false. | A. At formation, acorporation's E&P depends on the amount of capital contributedby the shareholders. | | B. Adjustments totaxable income when computing E&P do not include tax exemptinterest. | | C. For E&Pdividend distribution purposes, property as defined in Sec. 317(a)includes money. | | D. The function ofE&P is to provide a measure of a corporation's economic abilityto pay dividends. | | |
25) Exit Corporation hasaccumulated E&P of $24,000 at the beginning of the current taxyear. Current E&P is $20,000. During the year the corporationmakes the following distributions to its sole shareholder who has a$22,000 basis for her stock.
| | Date | AmountDistributed | | April 1 | $20,000 | | June 1 | 20,000 | | August 1 | 15,000 | | November 1 | 5,000 | | |
The treatment of the $15,000 August 1 distribution would be | A. $4,000 is taxableas a dividend from accumulated E&P, and $11,000 is tax-free asa return of capital | | B. $5,000 is taxableas a dividend from current E&P and $10,000 is tax-free as areturn of capital | | C. $15,000 is taxableas a dividend; $5,000 from current E&P and the balance fromaccumulated E&P | | D. $15,000 is taxableas a dividend from accumulated E&P | | |
26) Current E&P does notinclude | A. tax-exemptinterest income | | B. life insuranceproceeds where the corporation is the beneficiary | | C. federal income taxrefunds from prior years | | D. All of the theseare included | | |
27) Identify which of thefollowing statements is true. | A. Section 179property must be expensed ratably over a 5-year period whencomputing E&P. | | B. Losses on propertysales to related parties are not deductible when computingE&P. | | C. Distributions madeout of accumulated E&P are allocated ratably between multipledistributions made during the tax year. | | D. All arefalse. | | |
28) Crossroads Corporationdistributes $60,000 to its sole shareholder Harley. Crossroads hasearnings and profits of $55,000 and Harley's basis in her stock is$20,000. After the distribution, Harley's basis is | A. $20,000 | | B. $60,000 | | C. $5,000 | | D. $15,000 | | |
29) Hogg Corporation distributes$30,000 to its sole shareholder, Ima. At the time of thedistribution, Hoggs' E&P is $14,000 and Ima's basis in herstock is $10,000. Ima's gain from this transaction is | A. $20,000 capitalgain | | B. $30,000 capitalgain | | C. $6,000 capitalgain | | D. $14,000 capitalgain | | |
30) One consequence of aproperty distribution by a corporation to a shareholder is | A. the amount of thedistribution is increased by any liability assumed by theshareholder | | B. any liabilitiesassumed by the shareholder do not reduce the shareholder'sbasis | | C. the shareholder'sbasis in the distributed property is the same as the distributingcorporation's basis | | D. the holding periodof the distributed property includes the holding period of thedistributing corporation | | |
31) Identify which of thefollowing statements is true. | A. The distributingcorporation's E&P must be reduced by the FMV of nontaxablestock rights distributed to shareholders. | | B. A stock redemptioncan be used to withdraw some assets from a corporation prior to asale of the business. | | C. A shareholder canredeem part of his stock and recognize a capital gain if thecorporation has only one shareholder. | | D. All arefalse. | | |
32) Which of the following isnot a reason for a stock redemption? | A. desire byremaining shareholders to retain control | | B. No outside marketexists for the stock. | | C. Redemption ofshares is a good corporate investment. | | D. desire byshareholders to reduce the corporate tax liability | | |
33) Elijah owns 20% of ParkCorporation's single class of stock. Elijah's basis in the stock is$8,000. Park's E&P is $28,000. If Park redeems all of Elijah'sstock for $48,000, Elijah must report dividend income of | A. $0 | | B. $48,000 | | C. $40,000 | | D. $28,000 | |
