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How will Joanne treat distribution for tax purposes

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Question - Joanne owns 100% stock of the hockey shop. Her basis in the stock is $24,000. In its first year of existence the hockey shop earned $30,000 of E&P. One half of this sum was earned from January through June, the other half from July through December. On July 1 hockey shop distributed $40,000 in cash to Joanne. How will Joanne treat distribution for tax purposes?

a. $40,000 dividend

b. $24,000 dividend and $16,000 reduction in basis

c. $15,000 dividend, $24,000 reduction in basis, and $1,000 gain

d. $15,000 dividend and $25,000 reduction in basis

e. $30,000 dividend and $10,000 reduction in basis

f. $24,000 reduction in basis and $16,000 gain.

Reference no: EM132478212

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