The GAAP basis financials of Saldia, Inc. for the year ended 12/31/21 are shown below. On January 1, 2021, Salida had two shareholders. Selena, owned 75% of the stock and Hector owned 25% of the stock. They have both owned their stock since the inception of Seleda in 2017. On March 31, 2021, Hector sold all of his stock to Isabella for $500 (this is Isabella’s starting stock basis). Salida made two distributions during the year. They distributed $70,000 on February 1, 2021 ($52,500 to Selena and $17,500 to Hector) and $10,000 on November 1, 2021 ($7,500 to Selena and $2,500 to Isabella). On January 1, 2021, Selena’s basis in her stock was $2,000. Answer the questions on the following page. (Show your work! Round your answer to the nearest whole dollar)
Book
Book-tax differences
Tax
E&P adjustments
Current E&P
Sales
$750,000
CGS
($400,000)
Gross profit
$350,000
Salaries
($250,000)
Entertainment expenses
($6,000)
Depreciation expense
($75,000)
Operating expenses
($331,000)
Ordinary income
$19,000
Dividend income
$22,000
Capital gains
$10,000
Dividend received deduction
Other income (expenses)
$32,000
Net
$51,000
Additional information:
· Salida’s accumulated E&P on January 1, 2021 was $45,000.
· Salida’s MACRS depreciation was $58,000 and ADS depreciation was $95,000 for the year.
· Salida has a capital loss carryforward of $7,000 from 2019.
· The dividends are from a small investment in another corporation. Salida owns less than 1% of the other corporation.
- What is Salida’s taxable income?
- What is Salida’s current E&P?
- For the February 1, 2021 distribution, how much is
a. Dividend
b. Non-dividend distribution
- For the November 1, 2021 distribution, how much is
a. Dividend
b. Non-dividend distribution
- How much of the February 1, 2021 distribution is taxed as the following for Selena?
a. Dividend
b. Long-term capital gain
c. Short-term capital gain
d. Not taxed
- How much of the February 1, 2021 distribution is taxed as the following for Hector?
a. Dividend
b. Long-term capital gain
c. Short-term capital gain
d. Not taxed
- How much of the November 1, 2021 distribution is taxed as the following for Selena?
a. Dividend
b. Long-term capital gain
c. Short-term capital gain
d. Not taxed
- How much of the November 1, 2021 distribution is taxed as the following for Isabella?
a. Dividend
b. Long-term capital gain
c. Short-term capital gain
d. Not taxed
- What is the total of Salida’s current and accumulated E&P after both distributions?
- What is Selena’s basis in her stock on January 1, 2022 assuming there were no other transactions for the year?
- What is Isabella’s basis in her stock on January 1, 2022, assuming there were no other transactions for the year?