# Question 22 (2 points) Blue Corporation has a deficit in accumulated E & P of \$300,000...

Question 22 (2 points) Blue Corporation has a deficit in accumulated E & P of \$300,000 and has current E & P of \$225,000. On July 1, Blue distributes \$250,000 to its sole shareholder, Sam, who has a basis in his stock of \$52,500. As a result of the distribution, Sam has: Dividend income of \$225,000 and reduces his stock basis to \$27,500. Dividend income of \$52,500 and reduces his stock basis to zero. Dividend income of \$225,000 and no adjustment to stock basis. O O O No dividend income, reduces his stock basis to zero, and has a capital gain of \$250,000. None of these.

Answer-The correct option is a-Dividend income of \$225,000 and reduces his stock basis to \$27,500.

Explanation:

Since the current Earning and profit = \$225,000

Dividend income =\$250,000

Sam basis in stock = \$52,500

To calculate taxable dividend

Dividend income - Stock basis = taxable dividend

250,000 - 52,500 = 197,500

To calculate reduction in stock basis

Current E &P - taxable dividend = reduction stock basis

225,000 - 197,500 = 27,500

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