Accounting four MCQs

1. (TCO 3) As of January 1, Spruce Corporation has a deficit in accumulated E & P of $37,500. For tax year, current E & P (all of which accrued ratably) is $20,000 (prior to any distribution). On July 1, Spruce Corporation distributes $25,000 to its sole, noncorporate shareholder. The amount of the distribution that is a dividend is (Points : 2)
$0.
$20,000.
$25,000.
$37,500.
None of the above

2. (TCO 3) Glenda is the sole shareholder of Condor Corporation. She sold her stock to Melissa on October 31 for $150,000. Glenda's basis in Condor stock was $50,000 at the start of the year. Condor distributed land to Glenda immediately before the sale. Condor's basis in the land was $20,000 (fair market value of $25,000). On December 31, Melissa received a $75,000 cash distribution from Condor. During the year, Condor has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000. Which statement is true? (Points : 2)
Glenda recognizes a $110,000 gain on the sale of her stock.
Glenda recognizes a $100,000 gain on the sale of her stock.
Melissa receives $5,000 of dividend income.
Glenda receives $20,000 of dividend income.
None of the above

3. (TCO 3) Which does not increase the E & P of a corporation? (Points : 2)
Dividends received deduction
Collection of proceeds from an insurance policy on the life of a key employee
Federal income tax refund
Charitable contributions in excess of 10% limitation
None of the above

4. (TCO 3) Walnut Corporation, a calendar-year taxpayer, has taxable income of $110,000 for the year. In reviewing Walnut’s financial records, you discover the following occurred this year.

Federal income taxes paid: $25,000
Net operating loss carry forward deducted currently: $25,000
Gain recognized this year on an installment sale from a prior year: $12,000
Depreciation deducted on tax return (ADS depreciation would have been $8,000): $15,000
Interest income from Wisconsin state bonds: $37,000

Walnut Corporation's current E & P is (Points : 2)
$73,000.
$138,000.
$142,000.
$166,000.
None of the above