The Serenity Corporation distributes $200,000 in cash to its shareholder during

Question

The Serenity Corporation distributes $200,000 in cash to its shareholder during 2017. Accumulated earnings and profits are $80,000 as of January 1, 2017. Current eamings and profts for 2017 are $84,000. Jonas, the sole shareholder of Serenity Corporation, has a basis of $48,000 in his stook. What is the tax effect of the O A. Jonas will ecognize ordinary income of $164,000 and a capital loss of $12,000 OB. Jonas will recognize ordinary income of $84,000, capital gain of $80,000 and a tax-free recovery of capital of $36,000. ? ?. Jonas will reoognize ordinary income of $164,000 and a tax-free return of capital of $36,000 O D. Jonas will recognize ordinary income of $164,000 and a capital gain of $36,000

Explanation / Answer

D. Jonas will recognise ordinary income of $164,000 and a capital gain of $36,000

Accumulated earnings and profits $80,000

Current year earnings and profits $84,000

Total ordinary income $164,000

Distribution in cash $200,000

Balance is capital gains $36,000

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