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22 November, 16:05

Dixie Corporation distributes $31,000 to its sole shareholder, Sally. At the time of the distribution, Dixie's Earnings and Profits (E&P) is $25,000 and Sally's basis in her Dixie stock is $10,000. Sally's basis in her Dixie stock after the distribution is (A). $31,000 (B). $25,000 (C). $10,000 (D). $4,000

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  1. 22 November, 16:21
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    (D) $4,000

    Explanation:

    Initial amount distributed is $31,000

    Earnings and Profit (E & P) $25,000

    Therefore, Distribution in excess of earnings and Profit would be;

    = Initial amount distributed - Earnings and Profit

    =$31,000 - $25,000

    =$6,000

    Sally basis in her Dixie stock after the distribution would be;

    = Basis - Excess distribution

    =$10,000 - $6,000

    =$4,000
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