Aggie Corporation made a distribution of $571,000 to Rusty Cedar in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100 shares (100 percent) of Aggie Corporation. The distribution was in exchange for 50 percent of Rusty’s stock in the company. At the time of the distribution, the shares had a fair market value of $150 per share. Rusty’s income tax basis in the shares was $37 per share. Aggie had total E&P of $8,275,000 at the time of the distribution. a. What is the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation?
b. Assuming Aggie made no other distributions to Rusty during the year, by what amount does Aggie reduce its total E&P as a result of the partial liquidation?

A. $113

B. $571,000

Explanation:

A. Calculation for What is the amount and character (capital gain or dividend)

Using this formula

Capital gain or dividend=Fair market value -Income tax basis

Let plug in the formula

Capital gain or dividend=$150 per share-$37 per share

Capital gain or dividend=$113

Therefore the amount and character (capital gain or dividend) of any income or gain recognized per share by Rusty as a result of the partial liquidation is $113

B. Calculation for the amount that Aggie reduce its total E&P as a result of the partial liquidation

Based on the information given in a situation where the liquidation is been treated as an exchange, it means that Aggie will either lower its E&P by the amount of ($571,000) or by the pro-rata amount of the E&P which is calculated as (50% × $8,275,000 = $4,137,5000).

Therefore the amount that Aggie will reduce its total E&P as a result of the partial liquidation will be the amount of $571,000.

both are integral parts of a corporate balance sheet. the cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. the income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).

a cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. it captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. the cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. a cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.

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