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Becker CPA Review, PassMaster Questions
Lecture: Regulation 3 CPA-04731
Choice "d" is correct. When a corporation makes multiple distributions during the taxable year, current
E&P is first allocated to each distribution on a pro rata basis; then, accumulated E&P is applied in
chronological order beginning with the earliest distribution. In this example, where there are two
distributions made by Bridge, the current and accumulated E&P are allocated as follows:
March distribution $20,000 Current E& P - $20,000 (March distribution)/$40,000 (total distributions)
x $10,000 (Current E&P) = Amount out of Current E&P $5,000 Accumulated E&P = allocate first come first serve = chronological until
either Acc E&P is used up or entire distribution is dividend. Here $15,000
Accumulated E&P = $15,000 remaining distribution; thus use
$0 remaining in Accumulated E&P $15,000 Entire distribution is a dividend $20,000 July distribution $20,000 Current E& P - $20,000 (July distribution)...
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