The GAAP basis income statement of Rock, Inc. for the year ended 12/31/2023 is shown below. 

 

On 1/1/2023, Rock had two shareholders, both of whom owned their stock since the inception of Rock in 2017. Ling owned 70% of the stock and Pedro owned 30%.  On 3/31/2023, Pedro sold all his stock to Bill for $1,000 (this is Bill's starting stock basis). Rock made two distributions during the year:

1. $60,000 on 2/1/2023 ($42,000 to Ling and $18,000 to Pedro)
2. $20,000 on 11/1/2023 (14,000 to Ling and $6,000 to Bill)

Additional Information:

• On 1/1/2023, Ling's basis in her stock was $1,000. 
• Rock's accumulated E&P on January 1, 2023 was $40,000.
• Rock's MACRS depreciation was $47,000 and ADS depreciation was $85,000 for 2023.
• Rock has a capital loss carryforward of $8,000 from 2022.
• The dividends were from an investment in another corporation. Rock owns less than 1% of the other corporation. 

 

Show your work, and round your answer to the nearest whole dollar. 

 

 

1. What is Rock's taxable income?

 

2. What is Rock's current E&P?

 

3. For the two distributions, how much is dividend and how much is non-dividend distribution?

 

Distribution	Dividend	Non-Dividend
2/1/2023
11/1/2023

 

4. How much of the 2/1/2023 distribution is taxed as the following to Ling and Pedro?

 

	Ling	Pedro
Dividend
Long-term capital gain
Short-term capital gain
Not taxed

 

5. How much of the 11/1/2023 distribution is taxed as the following to Ling and Bill?

 

	Ling	Bill
Dividend
Long-term capital gain
Short-term capital gain
Not taxed

 

6. What is the total of Rock's current and accumulated E&P after both distributions?

 

7. What is Ling's and Bill's basis in their stock on 1/1/2024 assuming there were no other transactions for the year?

 

Ling
Bill

Transcribed Image Text:

Book Book-tax difference Tax E&P Adjustments Current E&P Book Book-tax difference Tax E&P Adjustments Current E&P

Answer rating: 100% (QA)

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