Gopher Corporation Case Summary

PROBLEM 1
Gopher Corporation reported taxable income of $500,000 this year. Gopher paid a dividend of $100,000 to its sole shareholder, Sven Anderson. Gopher Corporation is subject to a flat-rate tax of 34 percent. The dividend meets the requirements to be a qualified dividend, and Sven is subject to a tax rate of 15 percent on the dividend.
What is the income tax imposed on the corporate income earned by Gopher and the income tax on the dividend distributed to Sven?

Corporate Income tax on Gopher $500,000 *34% = $170,000
Income tax on Sven’s dividend $100,000 *15% = $15,000
Total taxes imposed $170,000 + $15,000 = $185,000

PROBLEM 2
Bulldog Corporation reported taxable income of $500,000 this year, before any deduction for any …show more content…
Corporate income tax on Bulldog $400,000 *34% = $136,000
Income tax on bonus to Georgia $100,000 *35% = $35,000
Total income tax imposed $136,000 + $35,000 = $171,000
Bulldog decreased taxable income through tax deductible compensation and also reduced double tax on distribution of bonus by $100,000*34% = $34,000

PROBLEM …show more content…
Christine’s tax basis in the Jayhawk stock was $75,000, which reduces to $0 after the distribution and is less than the excess amount of current E&P ($300,000-$200,000=$100,000). The remaining $25,000 ($100,000-$75,000) is considered as capital gain.

(c) What is Jayhawk’s balance in accumulated E&P on the first day of next year?
As of January 1 of next year, Jayhawk will have a deficit in accumulated E&P of negative $200,000. Current E&P is reduced to $0, leaving a carryover of the beginning of the year accumulated E&P.

PROBLEM 4
Volunteer Corporation reported taxable income of $500,000 from operations this year. The company paid federal income taxes of $170,000 on this taxable income. During the year, the company made a distribution of land to its sole shareholder, Rocky Topp. The land’s fair market value was $75,000 and its tax and E&P basis to volunteer was $25,000. Rocky assumed a mortgage attached to the land of $15,000. Any gain from the distribution will be taxed at 34 percent. The company had accumulated E&P of $750,000 at the beginning of the year.

(a) Compute Volunteer’s total taxable income and federal income

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