EXAM 5 True/False (5 points each)-dnswer on bublc shect Dividends can only be pa
ID: 2396937 • Letter: E
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EXAM 5 True/False (5 points each)-dnswer on bublc shect Dividends can only be paid from earnings and profits 2. Dividends in excess of F 3. in excess of earnings and profits is a return of capital. Eamings and profits" is the same thing as "Retained earmings" F4. Liabilities assumed are the same as paying cash 5. Property taken from a corporation is treated as book-value sale. ES, in property distributions, gain is recognized, but losses arenot. 7. Stock dividends increase the basis of stock for the stockholder s. Section 351 is elected by the shareholders. 9. Section 351 is a tax-free transaction T 10. Section 351 applies to corporations and partnerships T11. Shareholders must keep track of their own stock basis. . Corporations must keep track of the stockholders' basis 13. Section 351 is mandatory if the requirements are met. T14 "Boot" received in a corporate formation is always taxable. 15. Assumption of a liability by the forming corporation is considered to be "boot" to the shareholder. 16. Obtaining corporate stock for services is tax free 17. C Corporations are flow-through entities. F 18. "Tax free" transactions normally imply carryover basis. T19 Corporate reorganizations and acquisitions can be structured in many ways waare or eonsolidationsExplanation / Answer
1. True : Dividend is distribution of profit to the shareholders which is paid out of profits and retained earnings ( i. e Profit of the previous years)
2 True : Dividend paid in excess of profit and retained earning is termed as return on capital and will not be taxable in the hands of the shareholders.
3. False : Earnings and Profits are not the same thing as "retained Earning". Profits are the amount remaining after deducted all the expenses for the year. whereas retained carnings are a item of balance sheet and it means the amount that remain in the business over the period of time after adjusting the losses.
4. False: liabilities assumed can not be taken as paying cash since all the liabilties are not payable in cash.
5. True : Property received from co-operations is taken as book value sale.
6. True : Under Section 311 (b) (1) if any corporate distribute non liquidated asset ( i e other than cash ) it will be liable to pay tax if there is gain on such distribution . But no treatment is required if loss is incurred on such distridution.
7. False : Stock dividend will not increase the basis of stock because it will not cost to the shareholder.
8. False: section 351 is not elected by shareholders.
9. True : Section 351 is a tax free transaction if conditions under section 351 is satified.
10. False: Since section 351 is related to the transfer of stocks and only corporations are eligible to held stock. it can not be applicable on partneship firms.
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