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Exercise 5-16 (Algorithmic) (LO. 3) On January 1 of the current year, Rhondell Corporation has accumulated...

Exercise 5-16 (Algorithmic) (LO. 3) On January 1 of the current year, Rhondell Corporation has accumulated E & P of $146,000. Current E & P for the year is $438,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year: a total of $233,600 ($116,800 to Elizabeth and $116,800 to Jonathan) on April 30 and a total of $408,800 ($204,400 to Jonathan and $204,400 Marshall) on December 31. Determine the allocation of the distributions by completing the table below. Assume that the shareholders have sufficient basis in their stock for any amount that is treated as return of capital.

From Current
E & P		 From Accumulated
E & P		 Treated as
Return of Capital
April 30 distribution of $233,600 0 (correct)
December 31 distribution of $408,800 $58400 (correct)
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Answer #1

Answer:

Accumulated EP = $146000

Current EP = $438000

Total EP = $584000

Distribution as on 30/04 = $233600

Distribution as on 31/12 = $408800

Total Distribution = $642400

Have to take care for = Total distribution - Total EP = %642400- $584000= $58400

From Current E&P From Accumulated E&P Treated as Return of Capital
April 30 Distribution of $233600 $159273 $74327 (All Comes out of acc)
December 31 distribution of $408800 $278727 $71673 $58400

For April 30 Current E&P = 233600/ 642400 x 438000 = 159273

For April 30 From Accumulated E&P = 233600- 159273= 74327

For December 31 Current E&P = 408800/ 642400x 438000= 278727

For December 31 from Accumulated E&P = 408800- 278727- 58400(Take care amount ) = 71673

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