Beaver Corporation reported taxable income of $500,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Eugenia VanDam. The land's fair market value was $20,000 and its tax and E&P basis to Beaver was $50,000. Eugenia assumed a mortgage on the land of $25,000. Any gain from the distribution will be taxed at 21 percent. Beaver Corporation had accumulated E&P of $1,500,000. (Leave no answer blank. Enter zero if applicable.) Compute Beaver's total taxable income and federal income text paid as result of distribution.

Question

Alonso Higgins

Business

13 June, 05:12

Beaver Corporation reported taxable income of $500,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Eugenia VanDam. The land's fair market value was $20,000 and its tax and E&P basis to Beaver was $50,000. Eugenia assumed a mortgage on the land of $25,000. Any gain from the distribution will be taxed at 21 percent. Beaver Corporation had accumulated E&P of $1,500,000. (Leave no answer blank. Enter zero if applicable.) Compute Beaver's total taxable income and federal income text paid as result of distribution.

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Eliana Jarvis · Answer 1

Beaver's total taxable income and federal income text paid as result of distribution is $500,000 and $105,000 respectively.

Explanation:

The computation of the taxable income and the federal income is shown below:

Taxable income = Taxable income + loss

= $500,000 + $0

= $500,000

Since the fair value is $20,000 is less than the mortgage on land i. e $25,000 so it would be a loss of $5,000 which would not be considered so we put the value zero.

And, the federal income equal to

= Taxable income * income tax rate

= $500,000 * 21%

= $105,000