Chapter 20 Notes - Chapter 20 The|e are a number of...

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Chapter 20 The|e are a number of irnpor-tant topics that we will cover in Chapter 20. The flrst one is the Current Distribution such as corporation writing checks to the shareholders and the cluestion is that how the shareholders treat the received funds? Is it a dividends or something else? Current Distribution The corporation will reflect the distribution as dividends to the extent that the corporation has either Current The concept of E&P is somewhat resumed like R/E, but they are not the same. I should the tax point of view, but not the financial standpoint. Current E&P -Profit earned in the current 1'ear Accumulated E&P-The accumulated profit fiom the past that is not yet been distributed to the shareholders. However the accumulation onll'goes back to t9t3. 'I#' ent to presed d4y'incorc to<. t's mean if the corporation distributes E&P using the amount befbre lear 1913. The amount is NOT tarable The code did not def-rne the E&P. Horvever, we can calculate it with the starting point of taxable income. The concept of E&P is to show the corporation's ability to pay the dividends' In t-ace. turn to the page of the book Page 20-4^it is the indication of moditication need to be made to the tarable income to anive at E&P I will allow }'ou to cop)'this page and bring it to the exam. Tarable Income -Items included in E&P, but not taxable income -Items ercluded lrom E&P -Timing ditTerence -Items deductible .'' rncluded in the calculation of current E&P' For xempt Income"' The corporation's ability to pay ld be included in the current For examPle, theory DRD did oration's abilitY income bY the DRD' he taxable income or erample' "depreciation using the r S,lL method". We depreciation to see the adjustment the current E&P'
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/ tt:, '----- -- ['' t': 111 i:ttt tt' 1(--:'.t " '^/l J,,. Problem 20-31 ! ' Taxable Income a) DRD b) Tax-exempt Interest c) Deprecation. Expense d) NoL-c/F e) Capital Loss-C/F /. r I ..',: /'L / --r ,-t'/ , 'r a'a 't:.) ln -.,, . ., rl -> 200DADB - S/L method ($130000-$5O}OO)//,'t from other years. l' ,t . -) we e it is also not current, it\is carryforward from other years. ' : /-/ <- $ 103000 + 16000 + 5000 + 80000 + 9000 7000 0 Federal Income Tar - </ 23420 $ r 96580 ) is distribuilEfi-on the current year, up to $196580 will be out of the current E&P and it will treat us the A Dividend: - 10000 0 -$10000 Dividend Case 2) Current E&P $3000 Accumulared E&P $5000 Again, first we will look at the Current E&P, then accumulated E&P 0 The rest of $2000 is the Return of Capital. Is it shareholder has the basis in the stock. Assume, the shareholder basis in the stock is A.B. of stock $13000 Return of Capital 2000 New Basis $l 1000 Assume, the shareholder basis in the stock is s5000 5000 -> the whole distribution amount is dividend $5000 -5000 : $8000 0 tax free? We do not know. It is tax free with the extent the
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This note was uploaded on 09/08/2010 for the course BUS 123A at San Jose State University .

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Chapter 20 Notes - Chapter 20 The|e are a number of...

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