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Purple Corporation has accumulated E & P of $100,000 on January 1, 2013. In 2013, Purple...

Purple Corporation has accumulated E & P of $100,000 on January 1, 2013. In 2013, Purple has current E & P of $130,000 (before any distribution). On December 31, 2013, the corporation distributes $250,000 to its sole shareholder, Cindy (an individual).

Purple Corporation’s E & P as of January 1, 2014 is

:A. $0.B. ($20,000).C. $100,000.D. $130,000.E. None of the above.

with explanation please

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Homework Answers

Answer #1

Total of Accumulated E & P as on December 31, 2013 is $230,000 (100,000 + 130,000)

Distribution made $250,000

Distribution in nature of Dividend is $230,000 (the balance of Accumulated E & P as on December 31, 2013)

The extra $20,000 distribution made is in the nature of Distribution of Return of the capital to the shareholder.

Therefore, $0 is the balance of Accumulated E & P as on December 31, 2013 (230,000 – 230,000).

Option A $0 is the correct option

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