Question

ABC Corporation distributes property to its sole shareholder, Andre. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E & P is $500,000. With respect to the distribution, which of the following statements is correct? ABC has a gain of $15,000 and Andre has dividend income of $350,000 ABC has a gain of $145,000 and Andre’s basis in the distributed property is $130,000. ABC has a gain of $130,000 and Andre’s basis in the distributed property is $350,000 ABC has a gain of $145,000 and Andre has dividend income of $130,000 None of the above

Answer 1

ABC has a gain of $145,000 and Andre's dividend income is $130,000

Step-by-step explanation:

Property ABC issued, has the following:

fair market value = $350,000

Adjusted basis = $205,000

Liability = $220,000

Calculate ABC's Corporation gain:

Gain = market value - Adjusted basis

= $350,000 - $205,000

= $145,000

ABC has a gain of $145,000

Calculate Andre's dividend income since he is the sole shareholder:

Dividend earnings = fair market value - liability

= $350,000 - $220,000

= $130,000

Andre's dividend income is $130,000

Correct option is D.

With respect to distribution, ABC has a gain of $145,000 and Andre's dividend income is $130,000