In the current year, Pearl Corporation has $300,000 of current and accumulated E&P. On June 3, Pearl Corporation distributes a parcel of land (a capital asset) worth $120,000 to Betty, a shareholder. The land has a $60,000 adjusted basis to Pearl Corporation and is subject to a $16,000 mortgage, which Betty assumes. Assume a 34% marginal corporate tax rate.

a)    What is the amount and character of the income recognized by Betty as a result of the distribution?

b)    What is Betty's basis for the land?

c)     What is the amount and character of Pearl's gain or loss as a result of the distribution?

d)    What effect does the distribution have on Pearl's E&P?

Newco Corporation has asked you to help determine whether it should use the accrual method or the cash method of accounting. What are the tax issues involved in making this determination?