What Is JJ Corporation's Balance in Accumulated Earnings and Profits

question 7

Multiple Choice

What is JJ Corporation's balance in accumulated earnings and profits at the beginning of year 2 if in year 1 it made a $40,000 distribution to its shareholders, its current earnings and profits was $35,000, and its accumulated earnings and profits was $25,000 at the beginning of year 1?

• A)$65,000
• B)$30,000
• C)$25,000
• D)$20,000

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Definitions:

Geometric Average Return

is a method of calculating the average rate of return on an investment that accounts for the effects of compounding, typically lower than the arithmetic average return.

Arithmetic Average Return

The simple mean of a series of returns generated over a period of time.

Dollar-Weighted Return

A method of calculating an investment's return that accounts for the timing and amount of cash flows into the investment.

Arithmetic Average

The simple mean calculated by adding a set of values and then dividing by the number of values.