Question

33. Hawkeye Company reports current E&P of $300,000 this year and accumulated E&P at the beginning of the year of $200,000. Hawkeye distributed $400,000 to its sole shareholder, Ray Kinsella, on December 31 of this year. Ray’s tax basis in his Hawkeye stock is $75,000.

a) How much of the $400,000 distribution is treated as a dividend to Ray?

b) What is Ray’s tax basis in his Hawkeye stock after the distribution?

c) What is Hawkeye’s balance in accumulated E&P as of January 1 of next year?

Answer #1

a) How much of the $400,000 distribution is treated as a dividend to Ray?

**Ans: $ 400,000**

( All $400,000 is treated as a dividend because the distribution is less than the company’s total earnings and profits of $500,000)

b) What is Ray’s tax basis in his Hawkeye stock after the distribution?

**Ans: $ 75,000**

**(** Ray’s tax basis in his Hawkeye stock remains
$75,000)

c) What is Hawkeye’s balance in accumulated E&P as of January 1 of next year?

**Ans: $100,000**

**(** Accumulated E&P as of January 1 is
$100,000, computed as $500,000 − $400,000.)

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The following information applies to the questions displayed
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Multiple Choice
$500000
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$200000
$0

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