Before either owner's basis is consulted, the AC507 Unit 4 distribution problem taxes a land transfer at the corporation and turns two equal payments into $85,950 dividends. Searches like "ac 507 unit 4 assignment example", "ac507 unit 4 sample" and "ac507 unit 4 example" land here.
What a finished AC507 Unit 4 corporate distribution problem looks like
Two pages: a corporate block, then one column per shareholder. The corporate block opens with the parcel, value [$180,000], basis [$70,000], subject to a [$40,000] mortgage Paula assumes. Section 311(b) treats the corporation as selling it, so $110,000 of gain is recognized and $23,100 of tax at 21 percent follows. Current earnings and profits rise from [$60,000] to $146,900, with accumulated earnings and profits of [$25,000] below. The shareholder columns come next. Paula's amount distributed under Section 301(b) is the land's value less the mortgage, $140,000, matching Quinn's cash. Each receives $73,450 of current and $12,500 of accumulated earnings, an $85,950 dividend. The remaining $54,050 reduces stock basis for both, leaving Paula $10,950 and Quinn $35,950. Paula's basis in the land is its $180,000 value.
How a AC507 Unit 4 example is structured
The problem proceeds from corporation to shareholder because the statute does. Recognition comes first: Section 311(b) reaches appreciated property, and Section 311(a) would bar a loss had the parcel been worth less than its basis, a point made in one sentence. Earnings and profits are then built for the year, with the gain added and the federal tax on it subtracted under the principles of Section 312, since a distribution cannot be classified until the current figure is known. Allocation follows the regulations under Section 316: current earnings pro rata across both same-day distributions, accumulated earnings by date, here also split evenly. Only then does each column apply Section 301(c), dividend first, then basis recovery, then any gain. A closing block reduces earnings and profits under Sections 312(a) through (c), netting the mortgage, and shows the account falling to zero rather than below it.
A sale the corporation never made
Distributing land worth [$180,000] with a [$70,000] basis triggers $110,000 of Section 311(b) gain, taxed at the flat 21 percent rate in force since 2018.
Earnings rebuilt before anyone is paid
The gain less its tax raises current earnings and profits to $146,900, and that figure, not the opening [$60,000], decides how much of each payment is a dividend.
The mortgage inside the amount distributed
Paula takes the parcel subject to [$40,000] of debt, so Section 301(b) measures her distribution at $140,000, the same as Quinn's check.
Identical steps for Paula and Quinn
Dividend, then recovery of stock basis, then gain, applied identically to both owners; neither exhausts basis, so no Section 301(c)(3) gain appears.
What the cash-only version shows
A comparison line puts each dividend at only $42,500 had the corporation paid cash instead, which is why property distributions are tested at the corporate level first.
Where marks go in AC507 Unit 4
Most points on this problem hang on what happens at the corporation before any shareholder column is opened. Submissions that skip Section 311(b) compute a $42,500 dividend for each owner and misclassify more than $43,000 apiece, an error that ripples into basis and the land. Measuring Paula's distribution at the land's full value, ignoring the assumed mortgage, is a frequent slip; giving her a carryover basis of [$70,000] instead of fair market value under Section 301(d) is another. Some papers spread accumulated earnings evenly across the year instead of applying them by distribution date, harmless on these facts but wrong in principle. Letting earnings and profits go negative after the distributions misreads Section 312. Leaving the tax on the gain out of current earnings overstates both dividends. A corporate block without citations reads as unsupported.
Get a AC507 Unit 4 example written to your instructions
Begin with the Unit 4 facts: each distribution with its date, any property's value, basis and debt, both earnings figures and every shareholder's basis; attach the rubric too. The corporate block is settled before the shareholder columns are opened, and the problem returns within 24-48h. First custom samples are free.
AC507 Unit 4 questions, answered
Why does the gain raise earnings and profits before the dividend is measured?
Because current earnings and profits are computed at year end and include every item of the year, the distribution's own gain among them. Section 312(b) adds the excess of value over basis when appreciated property is distributed, and the tax on that gain comes back out. The example shows the account before and after, so the jump from [$60,000] to $146,900 can be traced line by line.
What if the land had been worth less than its basis?
The corporation would recognize nothing. Section 311(a) bars losses on nonliquidating distributions, so a decline in value simply disappears at the corporate level, while Paula would still take the lower fair market value as her basis. The example mentions this because prompts sometimes swap in depreciated property to see whether a student assumes the rule works symmetrically, which it does not.
Is the dividend taxed at the qualified rate?
Usually, if the shares were held long enough around the dividend date and the corporation is domestic. The example labels both $85,950 dividends as qualified and brackets the rate, which depends on each owner's taxable income in the year your problem uses. The separate 3.8 percent tax on net investment income may also apply above its thresholds, and the example notes that without computing it.