Question 1

A C corporation has current Earnings & Profits (E&P) of $20,000 and accumulated E&P of ($30,000) deficit at the beginning of the year. The corporation makes a $25,000 cash distribution to its sole shareholder. How much of the distribution is a taxable dividend?

Accepted Answer

Nimble Dividend Rule: Dividends come from Current E&P FIRST. If Current is positive, it's a dividend, even if Accumulated is negative.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Netting Current and Accumulated E&P (only done if Current is negative).

A C corporation has current Earnings & Profits (E&P) of $20,000 and accumulated E&P of ($30,000) deficit at the beginning of the year. The corporation makes a $25,000 cash distribution to its sole shareholder. How much of the distribution is a taxable dividend?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 5

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