On January 1, 2019, Providence Corporation had a “Deficit” (negative) in its Accumulated Earnings And Profits...

On January 1, 2019, Providence Corporation had a “Deficit” (negative) in its Accumulated Earnings And Profits (E&P) of ($120,000). For the year of 2019, Providence Corporation had positive Current Earnings and Profits (E&P) of $80,000. On December 31,2019, Providence Corporation distributed $85,000 to its sole shareholder, Freddie. At the time of the distribution, Freddie had a basis of $30,000 in her stock in Providence Corporation. Freddie’s Taxable Dividend Income as a result of this distribution is:

$0
$80,000
$85,000
$30,000

Expert Solution

Providence corporation has current E & P of $80,000 even though its accumulated E & P is a deficit i.e $120000.

To the extent of the current E & P, Freddie has a taxable dividend i.e $80000.

The remaning $5000 will reduce Freddie's stock basis to $25000.

ekkarill92 answered 2 years ago

Explain how a corporation computes its current and accumulated Earnings & Profits balances. Why is it...

Explain how a corporation computes its current and accumulated Earnings & Profits balances. Why is it necessary to distinguish between current and accumulated Earnings & Profits.

What is the difference between current earnings and profits and accumulated earnings and profits?

mostafa Corporation had retained earnings at January 1, 2017, of $950,000. the Corporation had 500,000 shares...

mostafa Corporation had retained earnings at January 1, 2017, of $950,000. the Corporation had 500,000 shares of $ 2.5 par value common stock outstanding throughout 2017. Net income for 2017 was $520,000. The following transactions occurred during 2017: July 1A cash dividends of $0.5 per share was declared to stockholders of record on July 20. Aug. 1Paid the cash dividends. Nov. 1A 7% stock dividends was declared. The market price at the declaration date was $9 per share. Dec....

On January 1, 2020, Sandhill Corporation sold a building that cost $273,840 and that had accumulated...

On January 1, 2020, Sandhill Corporation sold a building that cost $273,840 and that had accumulated depreciation of $109,280 on the date of sale. Sandhill received as consideration a $263,840 non-interest-bearing note due on January 1, 2023. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2020, was 10%. At what amount should the gain from the sale of...

On January 1, 2017, Windsor Corporation sold a building that cost $254,700 and that had accumulated...

On January 1, 2017, Windsor Corporation sold a building that cost $254,700 and that had accumulated depreciation of $105,950 on the date of sale. Windsor received as consideration a $244,700 non-interest-bearing note due on January 1, 2020. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2017, was 9%. At what amount should the gain from the sale of...

On January 1, 2019, Kittson Company had a retained earnings balance of $218,600. It is subject...

On January 1, 2019, Kittson Company had a retained earnings balance of $218,600. It is subject to a 30% corporate income tax rate. During 2019, Kittson earned net income of $67,000, and the following events occurred: 1. Cash dividends of $3 per share on 4,000 shares of common stock were declared and paid. 2. A small stock dividend was declared and issued. The dividend consisted of 600 shares of $10 par common stock. On the date of declaration, the market...

On January 1, 2019, Kinney, Inc., an S corporation, reports $14,400 of accumulated E & P...

On January 1, 2019, Kinney, Inc., an S corporation, reports $14,400 of accumulated E & P and a balance of $36,000 in AAA. Kinney has two shareholders, Erin and Frank, each of whom owns 500 shares of Kinney's stock. Kinney's nonseparately stated ordinary income for the year is $18,000. Kinney distributes $21,600 to each shareholder on July 1, and it distributes another $10,800 to each shareholder on December 21. How are the shareholders taxed on the distributions? Ignore the 20%...

On January 1, 2019, Kinney, Inc., an S corporation, reports $4,000 of accumulated E & P...

On January 1, 2019, Kinney, Inc., an S corporation, reports $4,000 of accumulated E & P and a balance of $10,000 in AAA. Kinney has two shareholders, Erin and Frank, each of whom owns 500 shares of Kinney's stock. Kinney's nonseparately stated ordinary income for the year is $5,000. Kinney distributes $6,000 to each shareholder on July 1, and it distributes another $3,000 to each shareholder on December 21. How are the shareholders taxed on the distributions? Ignore the 20%...

On January 1, 2018, Accustart Corporation had 87,000common shares, recorded at $625,000, and retained earnings of...

On January 1, 2018, Accustart Corporation had 87,000common shares, recorded at $625,000, and retained earnings of $1,032,000. During the year, the following transactions occurred: Apr. 2 Issued 5,000 common shares at $20 per share. June 15 Declared a cash dividend of $0.15 per share to common shareholders of record on June 30, payable on July 10. Aug. 21 Declared a 5% stock dividend to common shareholders of record on September 5, distributable on September 20. The shares were trading for...

In 2007, AutoZone had a negative balance in its Retained Earnings and Shareholder’s Equity accounts. Is...

In 2007, AutoZone had a negative balance in its Retained Earnings and Shareholder’s Equity accounts. Is this an indication that the firm’s long-term survival is at stake? Should they place a priority on improving the negative positions in these 2 seconds? Explain.

Question