McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 4

Wolverine Corporation made a distribution of $500,000 to Rich Rod Inc. in partial liquidation of the company on December 31, 2011. Rich Rod Inc. owns 100 percent of Wolverine Corporation. The distribution was in exchange for 50 percent of Rich Rod Inc.'s stock in the company. At the time of
the distribution, the shares had a fair market value of $200 per share. Rich Rod Inc.'s income tax basis in the shares was $50 per share. Wolverine had total E P of $8,000,000 at the time of the distribution.
a. What is the amount and character (capital gain or dividend) of any income or gain recognized by Rich Rod Inc. as a result of the partial liquidation
b. Assuming Wolverine made no other distributions to Rich Rod Inc. during 2011, by what amount does Wolverine reduce its total E P as a result of the partial liquidation