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Please read carefully this tax accounting problem and answer 4 questions below: Petrel Corporation...

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Accounting

Please read carefully this tax accounting problem and answer 4
questions below: Petrel Corporation has accumulated E & P of
$85,000 at the beginning of the year. Its current-year taxable
income is $320,000. On December 31, Petrel distributed business
property (worth $140,000, adjusted basis of $290,000) to Juan, its
sole shareholder. Juan assumes a $70,000 liability on the property.
Included in the determination of Petrels current taxable income is
$16,000 of income recognized from an installment sale in a previous
year. In addition, the corporation incurred a Federal income tax
liability of $112,000, paid life insurance premiums of $4,500, and
received term life insurance proceeds of $150,000 on the death of
an officer.
A. What is Juans gross income from the distribution?
B. What is the E & P of Petrel Corporation after the property
distribution?
C. What is Juans tax basis in the property received?
D. How would your answers to (a) & (b) change if Petrel had
sold the property at its fair market value, used $70,000 of the
proceeds to pay off the liability, and distributed the remaining
cash and any tax savings to Juan?

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