Address the following Scenarios:As of January 1, 2016, Taber Corporation has a deficit in accumulated E&P of $120,000. For tax year 2016, current E&P (all of which accrued ratably) is $140,000 (prior...

Address the following Scenarios:

1. As of January 1, 2016, Taber Corporation has a deficit in accumulated E&P of $120,000. For tax year 2016, current E&P (all of which accrued ratably) is $140,000 (prior to any distribution). On July 1, 2016, Taber Corporation distributes $100,000 to its sole, noncorporate shareholder. What is the amount of the distribution that is a dividend?
2. On January 1, ACME Corporation (a calendar year taxpayer) has accumulated E&P of $60,000. During the year, ACME incurs a net loss of $100,000 from operations that accrues ratably. On June 30, ACME distributes $25,000 to Mary, its sole shareholder. How much of the $25,000 represents ordinary dividend income to Mary?
3. Five years ago, Debbie purchased 1,000 shares of common stock in Jones Corporation for $21,000. In the current year, Debbie receives a nontaxable stock dividend of 50 shares of Jones preferred. Total values at the time of the dividend are: $50,000 for the preferred and $100,000 for the common. Based on this information, what is Debbie’s basis?
4. Packard Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Packard also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a library.) Packard borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan. Excluding these items, Packard's taxable income is $500,000.
   1. What is Packard Corporation’s taxable income after these items are taken into account?
   2. What is Packard Corporation’s accumulated E&P at the start of next year if its beginning balance this year is $150,000?
5. On September 30, Cranson Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1 million note. The note is payable in five installments, with the first payment due next year. Because Cranson did not elect out of the installment method, none of the $600,000 gain is taxed this year.

   Cranson Corporation had a $300,000 deficit in accumulated E&P at the beginning of the year. Before considering the effect of the land sale, Cranson had a deficit in current E&P of $50,000.

   Larry, the sole shareholder of Cranson, has a basis of $200,000 in his stock. If Cranson distributes $900,000 to Larry on December 31, how much income must he report for tax purposes?

6. Martha, an individual, owns all of the outstanding stock in Cranson Corporation. Martha purchased her stock in Cranson nine years ago, and her basis is $56,000. At the beginning of this year, the corporation has $76,000 of accumulated E&P and no current E&P (before considering the effect of the distributions as noted below). What are the tax consequences to Martha (amount and type of income and basis in property received) and Cranson Corporation (gain or loss and effect on E&P) in each of the following situations?
   1. Cranson distributes land to Martha. The land was held as an investment and has a fair market value of $54,000 and an adjusted basis of $42,000.
   2. Assume that Cranson Corporation has no current or accumulated E&P prior to the distribution. How would your answer to (a) change?
   3. Assume that the land distributed in (a) is subject to a $46,000 mortgage (which Martha assumes). How would your answer change?
   4. Assume that the land has a fair market value of $54,000 and an adjusted basis of $62,000 on the date of the distribution. How would your answer to (a) change?
   5. Instead of distributing land in (a), assume that Cranson decides to distribute equipment used in its business. The equipment has a $14,000 market value, a $1,200 adjusted basis for income tax purposes, and a $5,200 adjusted basis for E&P purposes. When the equipment was purchased four years ago, its original fair market value was $18,000.
7. Annette, the president and sole shareholder of Meteor Corporation, has earned a salary bonus of $30,000 for the current year. Because of the lower tax rates on qualifying dividends, Annette is considering substituting a dividend for the bonus. Assume that the tax rates are 28% for Annette and 34% for Meteor Corporation.
   1. How much better off would Annette be if she were paid a dividend rather than salary?
   2. How much better off would Meteor Corporation be if it paid Annette a salary rather than a dividend?
   3. If Meteor Corporation pays Annette a salary bonus of $40,000 instead of a $30,000 dividend, how would your answers to (a) and (b) change?
   4. What should Annette do?

Submission Guidelines:

• Submit your answers in a 3-4 page Microsoft Word document or in a Microsoft Excel spreadsheet.
• Also submit your completed sections of theFederal Tax Form 1040and supporting forms where required.