Exit Corporation Has Accumulated E&P of $24,000 at the Beginning

question 31

Essay

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year. Current E&P is $20,000. During the year, the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. $$\begin{array} { | l | c | } \hline \text { Date } & \text { Amount Distributed } \\\hline \text { April 1 } & \$ 20,000 \\\hline \text { June 1 } & 20,000 \\\hline \text { August 1 } & 15,000 \\\hline \text { November 1 } & 5,000 \\\hline\end{array}$$ The treatment of the $15,000 August 1 distribution would be
A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P.
B) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax- free as a return of capital.
C) $15,000 is taxable as a dividend from accumulated E&P.
D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax- free as a return of capital.

• A) $15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P.
• B) $4,000 is taxable as a dividend from accumulated E&P, and $11,000 is tax- free as a return of capital.
• C) $15,000 is taxable as a dividend from accumulated E&P.
• D) $5,000 is taxable as a dividend from current E&P, and $10,000 is tax- free as a return of capital.

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Definitions:

Balance Sheet

A record presenting a business's holdings, obligations, and investor equity at a distinct time.

Unclassified Balance Sheet

A simple format of a balance sheet where assets, liabilities, and equity are listed in a single column without categorizing them into subcategories.

Accounts

Accounts refer to the records of financial transactions, reflecting credits and debits in the financial statements of a business or an individual.

General Ledger

A complete record of all the financial transactions of a company, organized by accounts, which provides the data used to create financial statements.