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shareholder distribution ($5,000) is return of capital.
Choice "c" is incorrect. Please refer to the discussion above for choice "b". As mentioned, preferred
shareholders are paid before common shareholders are paid. This answer choice incorrectly assumes
that the common shareholders are allocated their $10,000 first as dividend income and the preferred
shareholders receive the balance of E&P ($15,000) as dividend income.
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Becker CPA Review, PassMaster Questions
Lecture: Regulation 3 Choice "d" is incorrect. Please refer to the discussion above for choice "b". The corporation has $25,000
of available E&P from which to distribute to the shareholders. Distributions are deemed to come from
current E&P first and then from accumulated E&P (of which there is zero in this case). Only the excess is
allocated to return of capital (to the extent of capital) and then to capital gain distribution, if excess
remains. CPA-05549 Type1 M/C A-D Corr Ans: C PM#113...
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.
- Fall '10
- The Land