Answer:
The amount by which the dividend distribution should reduce Gelt's earnings and profits is $1,500.
Step-by-step explanation:
The mortgage on the land was assumed by the sole shareholder, the amount by which the dividend distribution should reduce Gelt's earnings and profits can be calculated using the following formula:
Amount of expected reduction in Gelt's earnings and profits = Adjusted basis of land - Mortgage on land ................. (1)
Where;
Adjusted basis of land = $6,500
Mortgage on land = $5,000
Substitute the values into equation (1), we have:
Amount of expected reduction in Gelt's earnings and profits = $6,500 - $5,000 = $1,500
Therefore, the amount by which the dividend distribution should reduce Gelt's earnings and profits is $1,500.