Question 31. [LO6] Bevo Corporation experienced a complete loss of its mill as the result o

31. [LO6] Bevo Corporation experienced a complete loss of its mill as the result of a fire. The company received $2 million from the insurance company. Rather than rebuild, Bevo decided to distribute the $2 million to its two shareholders. No stock was exchanged in return. Under what conditions will the distribution meet the requirements to be a partial liquidation and not a dividend? Why does it matter to the shareholders?

Problems

32. [LO1] Gopher Corporation reported taxable income of $500,000 this year. Gopher paid a dividend of $100,000 to its sole shareholder, Sven Anderson. Gopher Corporation is subject to a flat rate tax of 34%. The dividend meets the requirements to be a qualified dividend and Sven is subject to a tax rate of 15% on the dividend. What is the income tax imposed on the corporate income earned by Gopher and the income tax on the dividend distributed to Sven?

33. [LO1] Bulldog Corporation reported taxable income of $500,000 this year before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $100,000 to Georgia at year-end. Bulldog Corporation is subject to a flat-rate tax of 34%. The bonus meets the requirements to be “reasonable” and is therefore deductible by Bulldog. Georgia is subject to a marginal tax rate of 35% on the bonus. What is the income tax imposed on the corporate income earned by Bulldog and the income tax on the bonus paid to Georgia?

34. [LO2] Hawkeye Company reports current E&P of $300,000 this year and accumulated E&P at the beginning of the year of $200,000. Hawkeye distributed $400,000 to its sole shareholder, Ray Kinsella, on December 31 of this year. Ray’s tax basis in his Hawkeye stock is $75,000.

a. How much of the $400,000 distribution is treated as a dividend to Ray?

b. What is Ray’s tax basis in his Hawkeye stock after the distribution?

c. What is Hawkeye’s balance in accumulated E&P as of January 1 of next year?

35. [LO2] Jayhawk Company reports current E&P of $300,000 and accumulated E&P of negative $200,000. Jayhawk distributed $400,000 to its sole shareholder, Christine Rock, on the last day of the year. Christine’s tax basis in her Jayhawk stock is $75,000.

a. How much of the $400,000 distribution is treated as a dividend to Christine?

b. What is Christine’s tax basis in her Jayhawk stock after the distribution?

c. What is Jayhawk’s balance in accumulated E&P on the first day of next year?

36. [LO2] This year Sooner Company reports current E&P of negative $300,000. Its accumulated E&P at the beginning of the year was $200,000. Sooner distributed $400,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $75,000.

a. How much of the $400,000 distribution is treated as a dividend to Boomer?

b. What is Boomer’s tax basis in his Sooner stock after the distribution?

c. What is Sooner’s balance in accumulated E&P on the first day of next year?

37. [LO2] Blackhawk Company reports current E&P of negative $300,000. Its accumulated E&P at the beginning of the year was a negative $200,000. Blackhawk distributed $400,000 to its sole shareholder, Melanie Rushmore, on June 30 of this year. Melanie’s tax basis in her Blackhawk stock is $75,000.

a. How much of the $400,000 distribution is treated as a dividend to Melanie?

b. What is Melanie’s tax basis in her Blackhawk stock after the distribution?

c. What is Blackhawk’s balance in accumulated E&P on the first day of next year?

38. [LO2] This year Jolt Inc. reported $40,000 of taxable income before any charitable contribution deduction. Jolt contributed $10,000 this year to Goodwill Industries, a public charity. Compute the company’s current E&

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