Questions: Grape Corporation makes a nonliquidating distribution of appreciated property to its shareholders. Multiple Choice The corporation will report a galn. The corporation will report dividend expense equal to the fair value of the property distributed. The shareholders will report dividend income equal to the basis of the property distributed. The shareholders will report a galn.

The answer is the first one: The corporation will report a gain.

Explanation for each option:

1. The corporation will report a gain.
   This is correct. When a corporation makes a nonliquidating distribution of appreciated property to its shareholders, it must recognize a gain. The gain is calculated as the difference between the fair market value of the property and its adjusted basis. This is similar to selling the property at its fair market value.

2. The corporation will report dividend expense equal to the fair value of the property distributed.
   This is incorrect. Corporations do not report a dividend expense when distributing property. Instead, they recognize a gain or loss on the distribution of appreciated or depreciated property.

3. The shareholders will report dividend income equal to the basis of the property distributed.
   This is incorrect. Shareholders report dividend income equal to the fair market value of the property received, not the basis of the property.

4. The shareholders will report a gain.
   This is incorrect. Shareholders do not report a gain upon receiving a distribution. They report dividend income, which is based on the fair market value of the property received.

In summary, the corporation recognizes a gain on the distribution of appreciated property, and shareholders report dividend income based on the fair market value of the property received.