black coporation and Tom each own 50% false eBook Calculator Print Item Problem

Question

black coporation and Tom each own 50% false eBook Calculator Print Item Problem 19-37 (LO. 1,3) Black Corporation and Tom each own 50% of Tan Corporation's common stock. On lanuary 1, tan has a deficit in accumulated E & P of $200,000. Its current E & P is $90,000. During the year, Tan makes cash distributions of $40,000 each to Black and Tom. Click here for the Dividend Received Deduction table. a. Complete the statements below that outline how the two shareholders are taxed on the distribution elack Corporation has dividend income ot90,000x of which 4 40,000 X is taxed at regular V income tax rate. 90,000 X·of which Tom has dividend income of s,000/X , which $(- 40,000 V is taxed at the preferential income tax rate. The importance of corporate distributions derives from the variety of tax treatments that may apply. From the shareholder's perspective, received from the corporation may be treated as ordinary income, preferentially taxed dividend income, capital gain, or a nontaxable recovery of capital. From the corporation's perspective, distributions made to shareholders are generally not deductible. b. Tan Corperation's accumulated E & P at year end is a deficit balance of 190,000 All work saved.

Explanation / Answer

a) Dividend Income $40,000.00 b) $40,000 - $40000 x 80% $8,000.00 c)Regular d) Dividend Income $40,000.00 e) 40000 f) preferential income g) deficit h)$200,000 - (Current E&P)- $90,000 - (40000(dividend) +40000(dividend) $190,000.00

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