Reference no: EM133075302

Question - Assuming that XYZ Corporation is under the accrual basis of accounting, compute the earnings and profits according to the following accounting information. Record your calculations and results in a Word document or Excel spreadsheet.

Taxable income $530.000

Federal income tax liability paid 220,000

Interest income from tax-exempt entities 5,000

Meals and entertainment expenses 15,000

Excess of capital losses over capital gains 13,000

MACRS deduction 26,000

Straight line depreciation during 2009 16,000

Section 179 expense elected in 2009 100,000

Required - In a Word document, answer the following questions:

1. Compute the tax basis of each of the following:

A preferred stock dividend of 1,000 shares that have a fair market value of $10,000

A purchase of 1,000 shares of common stock 2 years ago for $1,000 with a fair market value of $1,000 at the time of the stock dividend distribution

2. Determine the tax consequences of a shareholder owning 100 stock rights to buy stock for $10 when the stock is purchased and retained and when the stock is sold immediately after purchase. Explain what information a shareholder would need in order to allocate basis to the rights. Then determine the related tax consequences. Assume that the value of stock rights is less than 15% of the value of a stock that had, at the time of distribution, a market value of $11.