13) Identify which of the following statements is false.
A) For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money.
B) The function of E&P is to provide a measure of a corporation’s economic ability to pay dividends.
C) At formation, a corporation’s E&P depends on the amount of capital contributed by the shareholders.
D) Adjustments to taxable income when computing E&P do not include tax-exempt interest.
14) Identify which of the following increases Earnings & Profits.
A) a capital contribution
B) life insurance proceeds payable to the spouse
C) tax-exempt interest income
D) All of the above increase E&P of a corporation.
15) Current E&P does not include
A) tax-exempt interest income.
B) life insurance proceeds where the corporation is the beneficiary.
C) federal income tax refunds from prior years.
D) All of the above are included.
16) Grant Corporation sells land (a noninventory item) with a basis of $57,000 for $100,000. Nichole will be paid on an installment basis in five equal annual payments, starting in the current year. The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes) by
A) $0.
B) $8,600.
C) $43,000.
D) $100,000.
17) Boxer Corporation buys equipment in January of the current year with a seven-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is
A) $1,500.
B) $3,000.
C) $14,000.
D) $15,000.
18) For purposes of determining current E&P, which of the following items cannot be deducted in the year incurred?
A) charitable contribution in excess of the 10% limitation
B) capital losses in excess of capital gains
C) life insurance premiums (in excess of the increase in cash surrender value for the policy) paid on the lives of key employees
D) dividends-received deduction.
19) Identify which of the following statements is true.
A) Section 179 property must be expensed ratably over a five-year period when computing E&P.
B) Losses on property sales to related parties are not deductible when computing E&P.
C) Distributions made out of accumulated E&P are allocated ratably between multiple distributions made during the tax year.
D) All of the above are false.
20) Poppy Corporation was formed three years ago. Poppy’s E&P history is as follows:
Year
Current E&P
Distributions
2005
2006
2007
$6,000
5,000
1,000
$4,000
1,000
-0-
Poppy Corporation’s accumulated E&P on January 1 will be
A) $0.
B) $7,000.
C) $5,000.
D) $12,000.
21) Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of the distribution, Dixie’s E&P is $25,000 and Sally’s basis in her Dixie stock is $10,000. Sally’s basis in her Dixie stock after the distribution is
A) $4,000.
B) $10,000.
C) $25,000.
D) $31,000.
22) Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley’s basis in her stock is $20,000. After the distribution, Harley’s basis is
A) $5,000.
B) $15,000.
C) $20,000.
D) $60,000.