Orion Corporation's board of directors decides to distribute property to its shareholders rather than pay a cash dividend. Regarding why Orion's board might make this decision, classify the following as either "Yes", a reason or "No", not a reason. a. The shareholders could want a particular property that is held by the corporation. b. To avoid issuing a taxable cash dividend, the corporation may want to issue a tax-free distribution of property. c. The corporation has low cash reserves but wants to distribute a dividend to its shareholders. d. To avoid any impact on E & P, the corporation may want to issue a property dividend instead of a cash dividend.
Let's classify each statement as either "Yes," a reason, or "No," not a reason for Orion Corporation's board of directors to distribute property instead of paying a cash dividend: a. **The shareholders could want a particular property that is held by the corporation.** - **Yes.** This could be a reason if the shareholders have a specific interest in a property held by the corporation. b. **To avoid issuing a taxable cash dividend, the corporation may want to issue a tax-free distribution of property.** - **No.** Distributing property is generally not tax-free. Property distributions are typically taxable to the shareholders and can also result in the corporation recognizing gain on the distribution. c. **The corporation has low cash reserves but wants to distribute a dividend to its shareholders.** - **Yes.** This could be a reason if the corporation wants to provide value to its shareholders but does not have sufficient cash reserves to pay a cash dividend. d. **To avoid any impact on E & P, the corporation may want to issue a property dividend instead of a cash dividend.** - **No.** Distributing property does impact E & P. The corporation must recognize gain on the distribution, which affects E & P, and the fair market value of the property distributed reduces E & P. So, the classifications are: a. **Yes** b. **No** c. **Yes** d. **No**
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