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Exercise 19-21 (Algorithmic) (LO. 1) At the beginning of the year, Myrna Corporation (a calendar year...

Exercise 19-21 (Algorithmic) (LO. 1)

At the beginning of the year, Myrna Corporation (a calendar year taxpayer) has E & P of $86,750. The corporation generates no additional E & P during the year. On December 31, the corporation distributes $130,125 to its sole shareholder, Abby, whose stock basis is $26,025.

If an amount is zero, enter "0".

As a result the distribution Abby has dividend income of $__________ and a taxable capital gain of $____________. Abby's stock basis is $____________ after the distribution.

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Answer #1

Answer:-

As a result the distribution Abby has dividend income of $86,750? ( Begining E & P out of distributed income ) and a taxable capital gain of $17,350 ( $130,125 - 86,750 - 26,025 )?. Abby'sstock basis is $0? after the distribution.

The importance of corporate distributions derives from the variety of tax treatments that may apply. From the shareholder’s perspective,distributions received from the corporation may be treated as ordinary income, preferentially taxed dividend income, capital gain, or anontaxable recovery of capital.Post-Submission

Answers: $86,750; $17,350; $0.

To the extent that a distribution is made from corporate earnings and profits (E & P), the shareholder is deemed to receive a dividend, whichis taxed either as ordinary income or as preferentially taxed dividend income.

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