Question

ABC Corp. paid two cash distributions during year 5. The first was $42,000, and the second...

ABC Corp. paid two cash distributions during year 5. The first was $42,000, and the second was $33,000. Accumulated earnings and profits (E & P) at the end of year 4 were $10,000. Current E & P for year 5 is $30,000. How will the first distribution be allocated between current E & P and accumulated E & P?

Current E & P Accumulated E & P

a. $16,800 $25,200

b. $16,800 $10,000

c. $25,200 $16,800

d. $30,000 $10,000

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Answer #1
Correct option is: B. $16,800 $10,000
Workings:
Cash Distributions:
First = $       42,000
Second = $       33,000
Total Cash Distributions = $       75,000
Distribution of Current E & P = $30000 X ($42000/$75000)
= $       16,800
Accumulated E & P = $       10,000
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