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Please show work and give an explanation Ashley, the sole shareholder of Hawk Corporation, has a...

Please show work and give an explanation

Ashley, the sole shareholder of Hawk Corporation, has a stock basis of $200,000 at the beginning of the year. On July 1, she sells all of her stock to Matt for $1 million. On January 1, Hawk has accumulated E & P of $90,000 and during the year, current E & P of $160,000. Hawk makes the following cash distributions: $270,000 to Ashley on March 31 and $90,000 to Matt on December 1. How are the distributions to Ashley and Matt taxed? What is Ashley’s recognized gain on the sale to Matt?

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The 160,000 in current E&P is allocated pro rata to the two distributions made during the year, the 120,000 is allocated to Ashley and 40,000 is allocated to matt. Current E&P is allocated entirely to Ashley. The 270,000 distribution to Ashley on march 31, 210,000 is taxed as dividend income and remaining 60,00 reduces her stock basis to 140,000. She recognizes capital gain of 860,000 on the sale of her stock. The 90,000 distribution to matt, 40,000 is taxed as a dividend and the remaining 50000 reduces his base to 950,000

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