[Anonymous]

I thought this was very basic concept when I was reviewing Becker and got all the questions correct in passmaster, however having hard time with it in Wiley. For example, the question below makes no sense to me…can anyone explain?

Chicago Corp., a calendar-year C corporation, had accumulated earnings and profits of $100,000 as of January 1, 2010, and had a deficit in its current earnings and profits for the entire 2010 tax year in the amount of $140,000. Chicago Corp. distributed $30,000 cash to its shareholders on December 31, 2010. What would be the balance of Chicago Corp.’s accumulated earnings and profits as of January 1, 2011?

A. $0

B. $(30,000)

C. $(40,000)

D. $(70,000)

C is the correct answer.

Thanks!

[Anonymous]

I'm using 2011, but I think I know which one you are talking about…

Balance sheet vs Tax basis? I was confused on that too, but I think I understand it now…

Under Balance sheet: Use FMV. This makes b/c using NBV will show your assets less than what they are actually worth.

For Tax basis: They are using NBV OR NBV plus gain recognized by the shareholder. I'm still confused on this. I, too, thought it was greater of “NBV plus gain recognized OR the liability assumed by the corporation.” It seems like Wiley doesn't take the “debt rule” in consideration….UGHHHH

I'm in the exact place as you…I have reviewed all Tax in Becker/Final review/almost done in Wiley…but haven't started b-law review yet. But I don't think that'll take more than 2-3days!! Exam on Friday, for me!!

[Soproudofmyself]

whoa…I was really tired last night. I just noticed I was reading that simulation like a partnership when it's a c corporation. lol whoa! that changes everything then! I read your post and I'm wondering why you made reference to a shareholder lol…ok I feel better now. Going re-try that simulation without freaking out.

This is why we all need to a good night sleep before the exam and we can't FREAK OUT lol.

Thanks!

[Soproudofmyself]

i seriously did NOT know this much on my prior attempts with REG….hoping it's a good sign =)

[Anonymous]

Good Luck!!! Wiley SIMS really aren't too bad after you do them couple of times…I just keep re-doing them everytime I do set of MCQs. Let me know your thoughts after you work on this one…I was confused about liability part!

[Anonymous]

Yeah, C is correct.

Take the $100K in Accumulated E&P. Then subtract the $140K money flushed down the toilet this year. Net is (40K). Now do the distribution. Doesn't affect Accumulated E&P. So (40K) is the correct one.

[Anonymous]

I thought this was very basic concept when I was reviewing Becker and got all the questions correct in passmaster, however having hard time with it in Wiley. For example, the question below makes no sense to me…can anyone explain?

Chicago Corp., a calendar-year C corporation, had accumulated earnings and profits of $100,000 as of January 1, 2010, and had a deficit in its current earnings and profits for the entire 2010 tax year in the amount of $140,000. Chicago Corp. distributed $30,000 cash to its shareholders on December 31, 2010. What would be the balance of Chicago Corp.'s accumulated earnings and profits as of January 1, 2011?

A. $0

B. $(30,000)

C. $(40,000)

D. $(70,000)

C is the correct answer.

Thanks!

Since accumulated is (+) and current is (-) you can net the two, giving you -40K, and you would have to net the two anyways to get accumulated earnings for 2011. Any calculations beyond that are unnecessary, and since a deficit still exists after netting current and accumulated E&P this would lead to a tax-free recovery of basis and any excess amount would be treated as a capital gain.

[Author]

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