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23 November, 19:19

Beaver Corporation reported taxable income of $500,000 from operations this year. During the year, the company made a distribution of land to its sole shareholder, Eugenia VanDam. The land's fair market value was $20,000 and its tax and E&P basis to Beaver was $50,000. Eugenia assumed a mortgage on the land of $25,000. Any gain from the distribution will be taxed at 21 percent. Beaver Corporation had accumulated E&P of $1,500,000. (Leave no answer blank. Enter zero if applicable.) Compute Beaver's total taxable income and federal income text paid as result of distribution.

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  1. 23 November, 21:19
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    Beaver's total taxable income and federal income text paid as result of distribution is $500,000 and $105,000 respectively.

    Explanation:

    The computation of the taxable income and the federal income is shown below:

    Taxable income = Taxable income + loss

    = $500,000 + $0

    = $500,000

    Since the fair value is $20,000 is less than the mortgage on land i. e $25,000 so it would be a loss of $5,000 which would not be considered so we put the value zero.

    And, the federal income equal to

    = Taxable income * income tax rate

    = $500,000 * 21%

    = $105,000
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