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Valentin [98]
3 years ago
9

Blue Corporation has a deficit in accumulated E & P of $300,000 and has current E & P of $225,000. On July 1, Blue distr

ibutes $250,000 to its sole shareholder, Sam, who has a basis in his stock of $52,500. As a result of the distribution, Sam has:
Business
2 answers:
Rufina [12.5K]3 years ago
6 0

Answer:

<em>Sam's dividend income is $225,000 and has a reduction of stock basis of $27,500</em>

<em>Explanation:</em>

<em>From the example ,</em>

<em>Given that,</em>

<em>Sam stock is =$52.500</em>

<em>Blue corporation has deficit  in accumulated E and P which is =$300,000</em>

<em>Blue corporation has current  E and P of = $225,000</em>

<em>Blue distributes $250,000 to its shareholder on July 1st</em>

<em>Therefore,</em>

<em>Blue corporation has a current E & P of $225,000, to an extent, Sam has a taxable dividend. The remaining $25,000 reduces his basis stock.</em>

<em>Sam has an income dividend of $225,000 and reduces his stock basis to $27,500.</em>

valentinak56 [21]3 years ago
5 0

Answer: Sam will have a dividend income from Blue corporation of $225,000 and a reduction in his stock basis from $52,500 to $27,500

Explanation:

Since the current Earning and profit = $225,000

Dividend income =$250,000

Sam basis in stock = $52,500

To calculate taxable dividend

Dividend income - Stock basis = taxable dividend

250,000 - 52,500 = 197,500

To calculate reduction in stock basis

Current E &P - taxable dividend = reduction stock basis

225,000 - 197,500 = 27,500

To calculate balance remaining in stock basis

Dividend income - Current E&P = Balance in stock basis

250,000 - 225,000 = 25,000

Since the current E& P of Blue corporation is $225,000, as a result of this Sam dividend will be taxable by the tax authority, while the remaining balance of $25,000 will further reduce Sam stock basis from $52,500 to $27,500

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