[Mehwish]

Wiley Question –

At the beginning of the year, Westwind, a C- Corp, had a deficit of $45000 in AEP. For current year, Westwind reported earnings and profits of $15000. Westwind distributed $12,000 during the year. What was the amount of Westwind’s AEP deficit at the year end?

The answer is (42000).

Solution is reduce $12000 distribution, and than resulting $3000 reduces AEP to ($4200).

I thought you could only pay distributions out of a positive AEP, but here they reduced the CEP first by distributions than reduced AEP.

On another question the AEP is Positive, and CEP Negative, and AEP was first reduced by CEP, and the dividend distribution was not affected, since AEP ended up being negative.