25 May Question 1. During 2014, Miles Nutt, the sole shareholder of a calendar ye
Question
1. During 2014, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2013, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?
a. Nutt recognizes a $1,000 LTCG.
b. Nutt’s stock basis will be $2,000.
c. Nutt’s ordinary income is $15,000.
d. Nutt’s return of capital is $11,000.
e. None of the above.
2. Beginning in 2014, the AAA of Amit, Inc., an S corporation, has a balance of $614,000. During the year, the following items occur.
| Operating income | $501,000 |
| Interest income | 6,500 |
| Dividend income | 13,020 |
| Municipal bond interest income | 6,000 |
| Long-term capital loss from sale of investment land | 7.400 |
| Section 179 depreciation deduction | 6,000 |
| Charitable contributions | 19,000 |
| Cash distributions | 57,000 |
Amit’s ending AAA balance is:
| a. | $1,055,620. |
| b. | $1,185,150. |
| c. | $1,191,150. |
| d. | $1,242,150. |
| e. | Some other amount. |
3. On January 1, 2014, Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney’s stock. Kinney’s 2014 taxable income is $6,000. Kinney distributes $6,000 to each shareholder on February 1, 2014, and distributes another $3,000 to each shareholder on September 1. How is Erin taxed on the distribution?
a. $500 dividend income.
b. $1,000 dividend income.
c. $1,500 dividend income.
d. $3,000 dividend income.
e. None of the above.
4. Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is
$20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000). Fred’s taxable gain is:
a. $0.
b. $10,000.
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