[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Holly]

Bridge, a C corporation, had $15,000 in accumulated earnings and profits at the beginning of the current year. During the current year, Bridge reported earnings and profit of $10,000 and paid $20,000 in cash distributions to its shareholders in both March and July. What amount of the July distribution should be classified as dividend income to Bridge's shareholders?

a $15,000

b $10,000

c $5,000

d $20,000

BEC - 79
REG - 85
AUD - 5/27/16

[Gabe]

C

25

<20>- march

5

<5> july

remaining 10 would be reduction of basis (if basis was above 10), if not capital gain- correct?

CPA, CFE
CISA- Experience will be completed by August 2016

[Holly]

The answer is $5,000

When a corporation makes multiple distributions during the taxable year, current e&p is firs allocated to each distribution on a pro rata basis; then, acc 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 acc e&p are allocated as follows:

March distribution

current e&p = $20,000 (March distrib)/$40,000 (total distrib) x $10,000 (current e&p) = $5,000 amount out of current e&p.

Acc e&p = allocate first come first serve = chronological until either acc e&p is used up or entire distribution is dividend. here $15,000 acc e&p = $15,000 remaining distribution; thus use $0 remaining acc e&p.

entire distribution is a dividend

July distribution

current e&p = $20,000 (July distrib)/$40,000 (total distrib) x $10,000 (current e&p) = $5,000 amount out of current e&p.

Acc e&p = all used in March distribution = $5,000 dividend.

BEC - 79
REG - 85
AUD - 5/27/16

[Holly]

Your calculation is much simpler! That's question cpa-04731.

BEC - 79
REG - 85
AUD - 5/27/16

[Gabe]

The pro rata thing is throwing me…

I thought it was current e&p then accum e&p

So if they asked what the balances were in March

current e&p- $10k

distribution- $10k

= 0

accum e&p – $15k

distrib 20K

= $5k

CPA, CFE
CISA- Experience will be completed by August 2016

[OnlyBelieve]

Gabe – the E&P amount is $10,000, hence pro-rata between march and July will be $5,000 each. So the first $20,000 distribution in March can be offset by ($5,000 e&p and then $15,000 accum e&p-chronologically).

This leaves us with a $5,000 e&p carryforward for July which will be the amount of the dividend.

I think we are saying the same thing:)

AUD - DONE
BEC - DONE
REG - 04/04
FAR - 05/30

[jeff]

Post by Another71.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Gabe]

@only you are “pro-rating” 5k in march and 5k in july for current e&p whereas I am saying I would wipe out current e&p all together in March then use the accum e&p for the rest…which I thought was the correct way- current, then accum.

CPA, CFE
CISA- Experience will be completed by August 2016

[Peterman25]

Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000. Fall has $40,000 of accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year. At year-end, Fall distributed land with an adjusted basis of $30,000 and a fair market value (FMV) of $38,000 to Fox. The land has an outstanding mortgage of $3,000 that Fox must assume. What is Fox's tax basis in the land?

BEC 7/14 - PASS
FAR 10/14 - PASS
AUD 1/15 - PASS
REG 4/15 - PASS

AZ license - Official 8/20/2015

[Anonymous]

It's 38,000.

Prior to the distribution, Fall will need to adjust Book Value to FMV (and record a Gain).

That's one of those Corporate tax rules that I tend to forget about…

[Peterman25]

Yup…I found the question to be a bit tricky.

Basis in the property to Fall is 38,000 – FMV.

For dividend purposes the amount is 35,000 = 38,000 less 3,000 mort assumed.

BEC 7/14 - PASS
FAR 10/14 - PASS
AUD 1/15 - PASS
REG 4/15 - PASS

AZ license - Official 8/20/2015

[Holly]

@Gabe I think the hint to this specific question is where it says – when a corporation makes MULTIPLE distributions during the year and they give us the details of amounts and dates. I think that's the only time we're expected to allocate.

BEC - 79
REG - 85
AUD - 5/27/16

[Gabe]

Yep, so for c corp prop basis= FMV…liabilities are dealt with in regards to gains/income

CPA, CFE
CISA- Experience will be completed by August 2016

[Anonymous]

@angel how is ninja mcq going? What were you averaging on the Becker mcq? I'm about high 60s-70s I know it's normal for the first time but I feel like I'm missing the small details. I Just started r8 can't wait till I get to the tax part lol

[OnlyBelieve]

Fred exchanged a truck used in business subject to a liability of 20,000 for a similar truck with a liability of 10,000. Fred's basis in the truck he contributed is 50,000 and the FMV of the truck he rec'd is 100,000. Fred also received cash of 5,000. What is Fred's realized gain in this like-kind exchange transaction?.

AUD - DONE
BEC - DONE
REG - 04/04
FAR - 05/30

[Author]

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