[youngstyle]

Wiley Question –

Here is the question

1.Accum. E&P beg. of 2009 : $9,000

Current E&P entire 2009 : $9,000

Cash distribution on July 1 : $16,000

Amount dividend : $16,000

Return of stock basis : $0

Acum. E&P beg. of 2010 : $2,000

2.Accumu E&P beg of 2009: $40,000

Current E&P entire 2009 : ($55,000)

Cash distribution on July 1 : $15,000

Amount of dividend : $12,500

Return of stock basis : $2,500

Accum. E&P beg of 2010 : ($27,500_

For both of the question the cash distribution was on JULY 1, however the first question put entire current E&P

$16,000 into the calculation, but for the second question current E&P, it was divided in a half in to the calculation.

Why wasn’t the first question’s current E&P divided in half?

or should I just assume that if current E&P is positive, you just use the entire amount, and if it is negative use only the half of the amount?

[jfreelov]

There is no dividing in half; dividends are determined by using year-end E&P regardless of when the distribution occurs. You start by figuring out how much profits is available for dividends. This is any positive E&P from the current period plus E&P from beginning of the period.

In the first example: CEP + AEP = 9,000 + 9,000 = 18,000 available for dividends

18,000 – 16,000 dividend = 2,000 ending E&P

In second example: CEP is negative so only look at AEP: 40,000 available for dividends

40,000 – 12,500 dividend – 55,000 current year loss = (27,500) ending E&P

FAR - 71, 94
BEC - 91
REG - 51, 88
AUD - 89

[jfreelov]

There is no dividing in half; dividends are determined by using year-end E&P regardless of when the distribution occurs. You start by figuring out how much profits is available for dividends. This is any positive E&P from the current period plus E&P from beginning of the period.

In the first example: CEP + AEP = 9,000 + 9,000 = 18,000 available for dividends

18,000 – 16,000 dividend = 2,000 ending E&P

In second example: CEP is negative so only look at AEP: 40,000 available for dividends

40,000 – 12,500 dividend – 55,000 current year loss = (27,500) ending E&P

FAR - 71, 94
BEC - 91
REG - 51, 88
AUD - 89

[youngstyle]

The reason you got $12,500 dividend on the second question is you divided accul E&P. Then how did you come up with that dividend amount?

I will show you the whole calculations for both of them and let you see where I have my question

1 AEP+ CEP = 9000+9000= 18000 available for dividends

cash distributed: $16,000 so All $16,000 is dividend income.

AEP of 2010 = $2000

1. AEP + CEP = 40000 – (55000/2) = $12,500 available for dividends

cash distributed = $15,000, so up to $12,500 is dividend income, and other $2,500 is return of capital basis

AEP of 2010 (55,000/2)= (27,500)

now do you see my question? for the second one they divided the current E&P in half.

However for the first one they used the entire amount of current E&P.

So this made me think that when current E&P is negative and if the dividend is distributed on JULY 1,

I should divide the current E&P in half.

Can anyone confirm please?

[youngstyle]

The reason you got $12,500 dividend on the second question is you divided accul E&P. Then how did you come up with that dividend amount?

I will show you the whole calculations for both of them and let you see where I have my question

1 AEP+ CEP = 9000+9000= 18000 available for dividends

cash distributed: $16,000 so All $16,000 is dividend income.

AEP of 2010 = $2000

1. AEP + CEP = 40000 – (55000/2) = $12,500 available for dividends

cash distributed = $15,000, so up to $12,500 is dividend income, and other $2,500 is return of capital basis

AEP of 2010 (55,000/2)= (27,500)

now do you see my question? for the second one they divided the current E&P in half.

However for the first one they used the entire amount of current E&P.

So this made me think that when current E&P is negative and if the dividend is distributed on JULY 1,

I should divide the current E&P in half.

Can anyone confirm please?

[jfreelov]

My bad, I thought the $12,500 amount was given. To be honest, I'm stumped. From my Wiley book: “A dividend is a distribution of property by a corporation to its shareholders out of (1) Earnings and profits of the current taxable year (CEP), computed at the end of the year, without regard to the amount of earnings and profits at the date of distribution”

I just can't see the reason the CEP would be divided in half like that.

FAR - 71, 94
BEC - 91
REG - 51, 88
AUD - 89

[jfreelov]

My bad, I thought the $12,500 amount was given. To be honest, I'm stumped. From my Wiley book: “A dividend is a distribution of property by a corporation to its shareholders out of (1) Earnings and profits of the current taxable year (CEP), computed at the end of the year, without regard to the amount of earnings and profits at the date of distribution”

I just can't see the reason the CEP would be divided in half like that.

FAR - 71, 94
BEC - 91
REG - 51, 88
AUD - 89

[youngstyle]

I guess I will just think that if there is a negative current E&P and distributed during the year,

you don't use the entire current E&P, but use pro rata

I hope someone can help us out…

[youngstyle]

I guess I will just think that if there is a negative current E&P and distributed during the year,

you don't use the entire current E&P, but use pro rata

I hope someone can help us out…

[youngstyle]

I am taking my exam in just two days and I hope I don't see a question like this

not one person can answer this question…?

how did you guys pass the exam haha..

[youngstyle]

I am taking my exam in just two days and I hope I don't see a question like this

not one person can answer this question…?

how did you guys pass the exam haha..

[Author]

Replies