Question

Jayhawk Company reports current E&P of $377,500 and a deficit in accumulated E&P of ($275,000). Jayhawk distributed $452,500 to its sole shareholder, Christine Rock, on the last day of the year. Christine’s tax basis in her Jayhawk stock is $71,750.

**a.** How much of the $452,500 distribution is
treated as a dividend to Christine?

**b.** What is Christine’s tax basis in her Jayhawk
stock after the distribution?

**c.** What is Jayhawk’s balance in accumulated
E&P on the first day of next year?

Answer #1

a) Christine has dividend income of **$ 377,500**,
all of which is from the company's current E&P.

b) Christine reduces her **tax basis** in the
Jayhawk stock by **$71,750 to $0**, which is the
lesser of the distribution in excess of current E&P
**($75,000)** { 452,500 - 377,500 }or her basis in the
Jayhawk stock ($71,750). The remaining $3,250 ( 75,000 - 71,750
)will be treated as gain from sale of the Jayhawk stock (capital
gain).

c) Jayhawk has a balance in accumulated E&P as of
**($275,000)**. Current E&P is reduced to $0,
leaving a carryover of the beginning of the year accumulated
E&P.

Jayhawk Company reports current E&P of $465,000 and
accumulated E&P of negative $315,000. Jayhawk distributed
$542,500 to its sole shareholder, Christine Rock, on the last day
of the year. Christine’s tax basis in her Jayhawk stock is
$76,250.
a. How much of the $542,500 distribution is
treated as a dividend to Christine?
b. What is Christine’s tax basis in her Jayhawk
stock after the distribution?
c. What is Jayhawk’s balance in accumulated
E&P on the first day of next year?

Jayhawk Company reports current E&P of $502,500 and
accumulated E&P of negative $350,000. Jayhawk distributed
$592,500 to its sole shareholder, Christine Rock, on the last day
of the year. Christine’s tax basis in her Jayhawk stock is $65,250.
(Leave no answer blank. Enter zero if applicable. Negative
amounts should be indicated by a minus sign.)
How much of the $592,500 distribution is treated as a dividend
to Christine?
What is Christine’s tax basis in her Jayhawk stock after the
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Multiple Choice
$500000
$50000
$200000
$0

The following information applies to the questions displayed
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