Problem $23-29($LO$.6,7,8)$

Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning $50\%$ of the stock. Each shareholder recorded a $$400,000$ stock basis as of January $1.$ At the beginning of the tax year, Money reports balances in AAA of $$300,000$ and AEP of $$600,000.$ During the year, Money generates operating income of $$100,000.$ At the end of the year, Money distributes securities worth $$1,000,000,$ with an adjusted basis of $$800,000.$

Question Content Area

a$.$Considering the Federal income tax effects of these transactions, classify the following as either "True" or "False".

$$The distribution of securities results in a recognized gain of $$200,000$ to Money, Inc.

TrueFalseTrue

$$The operating income and the recognized gain on the distribution of the securities increase the corporate AAA.

TrueFalseTrue

$$The AAA is reduced to $$200,000,$ and AEP is reduced to zero.

TrueFalseFalse

$$The shareholder's basis is reduced by the taxable portion of the distribution.

TrueFalseFalse

$$Each shareholder has a $$100,000$ gain resulting from the distribution of securities$.$

TrueFalse