Question

Problem 19-38 (LO. 1, 3)

Complete the following schedule for each case. Assume that the shareholders have a sufficient basis in the stock investment.

All distributions are made at year end (December 31) except for part (e). For part (e) assume the $130,000 distribution is made on June 30.

If amount is zero, enter "0".

Accumulated E & P Beginning of Year Current E & P Cash Distributions Dividend Income Return of Capital a. ($200,000) $70,000 $130,000 $ $ b. 150,000 (120,000) 210,000 $ $ c. 90,000 70,000 150,000 $ $ d. 120,000 (60,000) 130,000 $ $ e. $120,000 ($60,000) $130,000* $ $

* The distribution of $130,000 is made on June 30 and the corporation uses the calendar year for tax purposes.

Check My Work1 more Check My Work uses remaining.

Answer 1

	accumulated E&P beginning of the year	current E&P	cash distribution	dividend income	return of capital
A	200000	70000	130000	70000	60000
B	150000	120000	210000	30000	180000
C	90000	70000	150000	150000	-
D	120000	60000	130000	60000	70000
E	120000	60000	130000	90000	40000

note

a ) dividend are limited to current year E&P if the distribution exceeds current year E&P it is considered as a return of capital

b ) in the negative current E&P add the accumulated E&P any distribution over the sum of the negative current E&P and the accumulated E&P is a return of capital

c) current and accumulated E&P allowed for full dividend treatment of distribution

d ) in the negative current E&P add the accumulated E&P , any distribution over the sum of the negative current E&P and the accumulated E&P is a return of capital

e) 90000 will be treated as distribution of dividend and the remainder 40000 will be considered as a return of capital