| Course | AC507 Business Taxation and Strategies |
|---|---|
| Unit | Unit 4 |
| Paper type | Corporate distribution problem |
| Length | About 590 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC507 Unit 4
Land to One Owner, Cash to the Other: A Unit 4 Corporate Distribution Problem Where the Gain Doubles the Dividend
[Student Name]
Purdue University Global
AC507: Business Taxation and Strategies
Unit 4 Corporate Distribution Problem
[Instructor Name]
[Date]
The landscaping corporation, its owners and every figure are composite; the statutes and publication cited are real; this is coursework analysis, not tax advice.
The Distribution
Paula and Omar each own half of the corporation. On June 15 the corporation distributes to Paula a parcel of land worth $180,000, with a basis of $70,000, subject to a $40,000 mortgage that Paula assumes. On the same day it distributes $140,000 in cash to Omar, so each receives a net $140,000 of value. Before the distribution, the corporation has $60,000 of current earnings and profits for the year and $25,000 carried in accumulated earnings and profits. Paula's stock basis is $40,000; Omar's is $60,000.
Block 1: The Corporation
When a corporation hands out property worth more than its basis, the code taxes the corporation on the difference, treating the transfer like a sale at market value (Taxability of corporation on distribution, 26 U.S.C. § 311, 2018). The land's $110,000 of built-in gain is recognized, and at 21 percent the corporation owes $23,100 of tax.
Current earnings and profits rise by the gain and fall by the tax: $60,000 plus $110,000 less $23,100 gives $146,900. Accumulated earnings and profits are $25,000.
Block 2: Sourcing the Dividends
Current earnings and profits are allocated to all distributions during the year in proportion to their amounts. The two distributions are equal, so each receives $73,450 of current earnings and profits. Accumulated earnings and profits are allocated in date order; both distributions fall on the same day, so each receives $12,500. Each shareholder's dividend is $85,950 (Dividend defined, 26 U.S.C. § 316, 2018).
Without the land gain, current earnings and profits would have been $60,000, and each dividend would have been $30,000 plus $12,500, or $42,500. The land doubled both owners' dividends, including Omar's, though he received only cash.
Distributing appreciated land creates corporate gain that becomes earnings and profits for the whole year, so Paula's land turns more of Omar's cash into a dividend too, which is why the corporate side has to be finished before either shareholder's result can be known.
Block 3: Paula
Her amount distributed is the land's $180,000 value less the $40,000 mortgage she assumed, $140,000. Of that, $85,950 is a dividend. The next $40,000 reduces her stock basis to zero. The remaining $14,050 is capital gain. Her basis in the land is its fair market value, $180,000 (Distributions of property, 26 U.S.C. § 301, 2018).
Block 4: Omar
His amount distributed is $140,000 in cash. Of that, $85,950 is a dividend. The remaining $54,050 is a return of capital that reduces his $60,000 stock basis to $5,950. He recognizes no capital gain.
Effect on Earnings and Profits
After the distributions, earnings and profits fall by the cash paid, $140,000, and by the land's value net of the mortgage, $140,000, but not below zero. Both current and accumulated earnings and profits end the year at zero (Internal Revenue Service, 2025).
Planning Note
If the owners had wanted Omar's dividend to stay at $42,500, the corporation could have sold the land in a different year or distributed it to Paula in a year with lower income. The land's gain is taxed either way at the corporate level, but its timing changes how much of each owner's cash is taxed as a dividend.
References
Distributions of property, 26 U.S.C. § 301 (2018).
Dividend defined, 26 U.S.C. § 316 (2018).
Internal Revenue Service. (2025). Corporations (Publication 542). U.S. Department of the Treasury.
Taxability of corporation on distribution, 26 U.S.C. § 311 (2018).
The Purdue Global AC507 Unit 4 instructions
Unit 4 of AC507 asks you to work through a corporate distribution from the corporation's side to each shareholder's. Begin with the property, its value, basis and any liability attached. Determine the corporation's gain or loss on distributing it and the tax on that gain. Recompute current earnings and profits with the gain and tax included, and note accumulated earnings and profits separately. Allocate current earnings and profits across all distributions in proportion and accumulated earnings and profits in date order. Then, for each shareholder, compute the amount distributed, the dividend, the return of capital and any capital gain, and the shareholder's basis in property received. Show how earnings and profits fall after the distribution. Add a planning note. Reference the distribution, dividend and corporate gain statutes and IRS guidance in APA 7.
How this AC507 Unit 4 example is built
The sample's facts give the land's value, basis and mortgage, Omar's cash, $60,000 of current and $25,000 of accumulated earnings and profits, and each owner's stock basis. Block one recognizes $110,000 of gain and $23,100 of tax and raises current earnings and profits to $146,900. Block two allocates $73,450 of current and $12,500 of accumulated earnings and profits to each, a dividend of $85,950, against $42,500 without the land gain. The highlighted sentence explains the cross-effect on Omar. Blocks three and four compute Paula's $14,050 gain and $180,000 land basis and Omar's reduced stock basis. A section reduces earnings and profits to zero, and a planning note discusses timing.
Where the points sit in the AC507 Unit 4 rubric
AC507 distribution problems are scored first on sequence, corporation before shareholders, and then on accurate allocation of earnings and profits. Graders check the corporate gain, the tax, the recomputed current earnings and profits and the pro rata and chronological allocations. The rubric rewards students who see that one shareholder's property distribution affects another shareholder's dividend. Shareholder computations must net liabilities against value, apply dividend, return of capital and gain in order, and give the correct basis in property received. Showing the effect on earnings and profits after distribution and offering a planning observation earn further credit. Answers that measure dividends before adding the corporate gain miss the central point. The statutes should appear as APA 7 references.
Common AC507 Unit 4 mistakes, and how to avoid them
Weak Unit 4 answers compute shareholder results first and the corporate gain afterward, so the dividends are understated. Others allocate current earnings and profits by date rather than in proportion. The mortgage assumed by the shareholder is ignored, overstating her amount distributed. Basis in the land is set at the corporation's old basis instead of fair market value. The effect on earnings and profits after the distribution is skipped. Losses on distributed property are treated as recognized, which the rules forbid outside liquidation. If your section's corporation distributes different property or has a deficit, a writer can rework the blocks with your facts.
Get an 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. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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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.
Where can I find a free AC507 Unit 4 sample paper?
This page holds a full AC507 Unit 4 corporate distribution problem for a composite landscaping corporation distributing land and cash, with section 311(b) gain, earnings and profits allocation, both shareholders' results and APA 7 references.
Why does Omar's dividend rise when he received only cash?
The land's $110,000 gain, less tax, raises the corporation's current earnings and profits for the whole year. Current earnings and profits are shared across all distributions, so more of Omar's cash is sourced from them.