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9 September, 11:36

ABC Corporation distributes property to its sole shareholder, Andre. The property has a fair market value of $350,000, an adjusted basis of $205,000, and is subject to a liability of $220,000. Current E & P is $500,000. With respect to the distribution, which of the following statements is correct? ABC has a gain of $15,000 and Andre has dividend income of $350,000 ABC has a gain of $145,000 and Andre's basis in the distributed property is $130,000. ABC has a gain of $130,000 and Andre's basis in the distributed property is $350,000 ABC has a gain of $145,000 and Andre has dividend income of $130,000 None of the above

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  1. 9 September, 14:08
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    ABC has a gain of $145,000 and Andre's dividend income is $130,000

    Explanation:

    Property ABC issued, has the following:

    fair market value = $350,000

    Adjusted basis = $205,000

    Liability = $220,000

    Calculate ABC's Corporation gain:

    Gain = market value - Adjusted basis

    = $350,000 - $205,000

    = $145,000

    ABC has a gain of $145,000

    Calculate Andre's dividend income since he is the sole shareholder:

    Dividend earnings = fair market value - liability

    = $350,000 - $220,000

    = $130,000

    Andre's dividend income is $130,000

    Correct option is D.

    With respect to distribution, ABC has a gain of $145,000 and Andre's dividend income is $130,000
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