Essay on Acct 553 Wk 5 Homework

1617 Words Nov 22nd, 2012 7 Pages
Questions: 14-24 and 14-51, 17-1 and 17-24
Problems (Show your work.): 14-52, 17-40, and 17-49
Chapter 14:
24. What is the purpose of the dividends received deduction? What corporations are entitled to claim this deduction? What dividends qualify for this deduction? The tax deduction received by a corporation on the dividends paid to it by companies in which it has an ownership stake. Generally Corporation pays taxes on its income before distributing dividends. So if this deduction is not allowed the corporation paying dividend pays taxes, the corporation receiving dividends pays taxes on it again and the shareholders receiving this pays tax again so it leads to triple taxation. U.S. corporations are generally entitled to a deduction
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It is important to understand how book income was determined before adjusting it to arrive at taxable income and also helps users of the financial statements and income tax returns to determine accuracy.
52. Sam Rogers forms a corporation. Sam transfers to the corporation property having a basis to him of $15,000 and a fair market value of $27,000 for 900 shares of the $10 par stock of the corporation. A year later, Bill Morrison, who is not related to Sam, transfers property having a basis to him of $1,000 and a fair market value of $3,000 for 100 shares of the corporate stock. The corporation issued no other stock.
a. How much gain does Sam recognize on his exchange? What is the basis to Sam of his 900 shares? Sam will not recognize a gain on the exchange because this trade qualifies as a Section 351 exchange. Sam's basis for the 900 shares is the basis of the property, which is $15,000.
b. How much gain does Bill recognize on his exchange? What is the basis to Bill of his 100 shares? Bill will recognize a gain of $ 2000 (3000 mkt. value-1000 basis) from this exchange; since Bill owns less than 80% of the company this will not qualify for a section 351 exchange. Bill’s basis for his shares is the fair market value of the property $ 3,000.
c. What gain or loss is recognized by the corporation when it issues its shares to Sam? What is

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