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5. A corporation has property valued at $100,000 with a tax basis of $50,000. The corporate...

5. A corporation has property valued at $100,000 with a tax basis of $50,000. The corporate tax rate is 21%. If the corporation distributes the property to its shareholder, complete the following, USING DOLLAR AMOUNTS (8 points): a. Effect on corporate taxable income __________________________________ b. Effect on corporate E&P ___________________________________________ c. Amount of the distribution to the shareholder__________________________ d. Basis of property to the shareholder__________________________________

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Answer #1

a. Effect on corporate taxable income

Taxable income will increase by $50,000 that is the difference between the market value of the property and its tax basis.

b. Effect on corporate E&P

Corporate E&P will decrease by $100,000 that is the market value of the property distributed.

c. Amount of the distribution to the shareholder

Amount of distribution to the shareholder will be equal to the market value of the property that is $100,000.

d. Basis of property to the shareholder

Basis of property to the shareholder will be equal to the amount of distribution that is $100,000.

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