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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

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.
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Answer #1

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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