Question

I only need part B answered. If you can please show the work. Thank you. I have included a screen shot which is the same information as the text in case you can't read the screen shot.

Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows:

Joe Jackson	400
Mike Jackson (Joe’s son)	200
Jane Jackson (Joe’s daughter)	200
Vinnie Price (unrelated)	200
Total shares	1,000

Thriller Corporation has current E&P of $400,000 for this year and accumulated E&P at January 1 of this year of $60,000. During this year, the corporation made the following distributions to its shareholders:

03/31: Distributed $100 per share to each shareholder ($100,000 in total).

06/30: Distributed $100 per share to each shareholder ($100,000 in total).

09/30: Distributed $100 per share to each shareholder ($100,000 in total).

12/31: Redeemed all of Vinnie’s shares for $250,000 in cash.

a. Determine the tax status of each distribution made this year.

     

b. Compute the corporation’s accumulated E&P at January 1 of next year. (Do not round intermediate calculations.)

     

Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows: Joe Jackson Mike Jackson (Joe's son) Jane Jackson (Joe's daughter) Vinnie Price (unrelated) Total shares 400 200 200 200 1,000 Thriller Corporation has current E&P of $400,000 for this year and accumulated E&P at January 1 of this year of $60,000. During this year, the corporation made the following distributions to its shareholders 03/31: Distributed $100 per share to each shareholder ($100,000 in total). 06/30: Distributed $100 per share to each shareholder ($100,000 in total). 09/30: Distributed $100 per share to each shareholder ($100,000 in total). 12/31: Redeemed all of Vinnie's shares for $250,000 in cash. a. Determine the tax status of each distribution made this year. Joe Vinnie Treatment dividend dividend exchange dividend distribution on 03/31 distribution on 06/30 distribution on 09/30 distribution on 12/31 b. Compute the corporation's accumulated E&P at January 1 of next year. (Do not round intermediate calculations.) Accumulated E & P at 01/01 of next year

Answer 1

Profits Distributed In form of shares of Company are treated as Dividend distributed to shareholders

total shareholding Before Declaring Dividend by thriller corporation =1000

The shareholders are holding shares in the ratio of 4:2:2:2

where first shareholder =400 =4

second shareholder =200 =2

Third Shareholder =200 =2

Fourth Shareholder = 200 = 2

Date	Particulars	Joe	Mike	Jane	Vinnie
jan 1	share holding	400	200	200	200
3/31	share distributes in ratio 4:2:2:2 Total value of share = $100000 Price per share = $100 No of shares distributed = 100000/100 =1000	400	200	200	200
6/30	share distributes in ratio 4:2:2:2 Total value of share = $100000 Price per share = $100 No of shares distributed = 100000/100 =1000	400	200	200	200
9/30	share distributes in ratio 4:2:2:2 Total value of share = $100000 Price per share = $100 No of shares distributed = 100000/100 =1000	400	200	200	200
	Total Shares	1600	800	800	800

date	Particulars	E&P ($)
Jan 1	accumulated E&P opening Balance	60000
Current year	E & P for the year	400000
3/31	dividend distributed in form of shares	-100000
6/30	dividend distributed in form of shares	-100000
9/30	dividend distributed in form of shares	-100000
12/31	redemption of shares by vinnie	-32000	Please refer explanation #1
	closing balance of E&P for theyear	128000

As per stock redemption Rules 318 If corporations Buy backs the shares from unrelated party and this result in reduction of the shareholder's ownership interest , then the Buy back is treated as Sale or exchange of shares not as dividend distribution.

As per relevant sec Accumlated Earnings Are reduced in case of redemption of shares to the amount person holds ownership of shares .

In this vinnie is unrelated person and holds 20% of ownership of shares in thriller corporation

as per stock redemption rules in sec 302 ,corporation buy whole shares of vinnie for $ 250000

and which makes vinnie share of ownership to 0% in corporations

so this treated as buy back of shares and redemption of shares will be reduced only 20% of accumlated earnings , as we have total accumated earnings = $460000

Dividend given in form shares reduced E&p by 300000 and remaining E&p =160000

so 20% of 160000 = 32000 as share holder can get profit only upto 20%of shareholding

so $ 32000 will be reduced from acculated earnings .

So corporated accumlated Earning at jan 1next year will be $ 128000