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Homework answers / question archive / John owns 100% of the stock of Zook, Inc

John owns 100% of the stock of Zook, Inc

Accounting

John owns 100% of the stock of Zook, Inc., with an adjusted basis of $70,000. He receives a cash distribution of $195,000 from Zook when its earnings and profits are $85,000.

 

a)        What is John's dividend income?

b)        What is John's recognized gain or loss?

c)        What is John's adjusted basis for her stock after the distribution?

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a)

Distribution to the extent of E&P balance is dividend income.

Dividend income is $85,000

 

b)

Recognized gain = Cash distribution- Profits- Adjusted basis

= 195000 - 85000 - 70000

= 40000

 

c)

Adjusted basis is $0

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