Question

42) & 43) Apple Corp distributes a piece of equipment to Sarah, its 100% shareholder. The...

42) & 43) Apple Corp distributes a piece of equipment to Sarah, its 100% shareholder. The property has a FMV of $35,000 and an adjusted basis of $15,000

42) Assuming there is sufficient E & P to treat this transaction as a dividend to Sarah, the effect of this transaction to the E & P of Apple is

a. an increase of $20,000

b. a decrease of $15,000

c. a decrease of $35,000

d. a decrease of $15,000

43) Sarah has dividend income of

a. $10,000

b. $15,000

c. $20,000

d. $35,000

Business   Accounting   
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Answer #1

43.A property dividend is a way of distribution of non cash dividend , where company distributes properrty to shareholder and its fair market value is regardes as dividend paid by company. Thus in this case Apple corp distributes a piece of equipment to Sarah thus Fair market value of equipment ($35000) is treated as dividend

(D) Sarah has dividend income of $35000

42.E&P = taxable income - federal taxes - distribution of dividend. Since property distribution dividend is equal to fair maket value of property so E& P will reduce by fair market value of property .c) so it will reduce E&P by $35000.

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