[Anonymous]

I thought this was very basic concept when I was reviewing Becker and got all the questions correct in passmaster, however having hard time with it in Wiley. For example, the question below makes no sense to me…can anyone explain?

Chicago Corp., a calendar-year C corporation, had accumulated earnings and profits of $100,000 as of January 1, 2010, and had a deficit in its current earnings and profits for the entire 2010 tax year in the amount of $140,000. Chicago Corp. distributed $30,000 cash to its shareholders on December 31, 2010. What would be the balance of Chicago Corp.’s accumulated earnings and profits as of January 1, 2011?

A. $0

B. $(30,000)

C. $(40,000)

D. $(70,000)

C is the correct answer.

Thanks!

[Anonymous]

My take is (and Id verify) when current E&P is neg and accum is positive you net at the time of the distribution, so here its YE and you get -40K and therefore the distribution with a netting of negative is a return of capital

Im gussing if the Dist date was July 1st you would have got it right it is tricky

[Anonymous]

Okay, maybe I got it….

Accumulated E&P at the end of the year would be ($40,000) instead of ($70,000) b/c if the E&P is negative…that distribution isn't considered dividend, but rather return of capital/capital gain. Thus, the distribution won't effect the E&P. Am I right?

General calculation of E&P:

Accumulated E&P as of the beg. of the year

+/- Current E&P for the tax year less any distribution deemed from current E&P

– Distribution from accumulated E&P

= Accumulated E&P as of the end of the year

I was subtracting the distribution and thus getting (-$70,000) instead of (-$40,000). Is my understanding correct?

Btw: Distribution was made on Dec. 31st!

[Anonymous]

“Thus, the distribution won't effect the E&P.”

This is correct and the reason it is tricky.

[Anonymous]

Perfect! Thank you!!

[Soproudofmyself]

I'm looking at the same subject right now too.

I've been using Becker the whole time and recently decided to purchase Wiley! I'm so glad I did!!!!

Since the distribution was made at the end of the year, it's a simple calculation and follows the explanation Becker has.

100k-140k = (40k) accum E&P, no dividends distributed.

However, if the distribution was made mid year (example: July 1st), the current E&P was earned throughout the year so you take half of the earnings 100k-70k= 30k –> 30k is a dividend distribution and reduces accum E&P. Accum E&P at the end of the year would be = 100k-70k-30k-70k= (70k).

If I didn't look at Wiley, I would have over looked the difference in dividends distributed mid year vs. end of year…Becker's explanation is correct, but it doesn't go into that much detail so you can easily over look something like this.

This might not explain your question, but I figured I'd raise the concern I'm having while reviewiing Wiley simulations.

[Soproudofmyself]

But if the “current” earnings are positive, then it doesn't seem to matter if the distribution was made mid year vs. end of year…the date of distribution seems to only matter if you have negative current earnings. So glad I looked at Wiley! This better be simulationn for me lol…I don't understand this weird rule though…I'm just gonna memorize it and call it a day!

[Anonymous]

$100,000 Acc E&P minus the $140,000 Current E&P deficit = ($40,000)

You don't subtract the distributions because it's not classified as a dividend since E&P ended up being a deficit when netted.

[Anonymous]

Same here!! There was a SIM on that, too…are you talking about that? I'm just memorizing it as well and hoping it sticks!!

Here's what Wiley says about E&P btw:

Distribution reduce E&P (but not below zero) by:

-The amt of $,

-NBV (or FMV if greater) of property,

-Plus the lib. on property assumed by distibutee.

Remembering this formula def. helps answer lot of E&P questions, at least in my opinion.

I also stumbled upon AMT for Corporation…and just don't get that question. I'm gonna keep that for the end, I have a feeling AMT won't go in much detail on the actual test, at least I hope so.

[Anonymous]

Don't memorize. Understand the concept….

[Anonymous]

Btw, is AMT ever exempt for corp?

[Anonymous]

For Corporations, AMT is exempt for the first year. In the second year, you're exempt if gross receipts from the first year is $5 million or less. For year 3, you're exempt if your Years 1 & 2 gross receipts average to $7.5 million or less. For Years 4 and beyond, you're exempt if your gross receipts for the previous 3 years averages to $7.5 million or less.

[Anonymous]

@CPAMan: I'm so jealous of you….how do you know all this? haha. I'm studying with Becker and didn't read this ANYWHERE…luckily, it showed up in Wiley.

You're gonna kick @ss on REG and be done with this once and for all!!!

[Anonymous]

I've been studying like crazy, lol. But for some strange reason, I still feel like I don't know enough….

[Anonymous]

Same here, and it's true, I feel like I don't know small details:( I've gone over all Tax in Becker (95% avg) and almost done in Wiley…I'm avg. 85%+ so far. I'm doing so well in Becker, but I have seen those MCQs sooo many times, first time for Wiley though!! Tomorrow & Monday/Tuesday will be going over b-law again (ugh SO dreading this). Then exam on Friday!!

You are taking it on Saturday, right? What's your study plan until then? You are gonna rock, I hope we both pass this beast!!!

[Soproudofmyself]

OMG! Looking at Wiley simulations are killing me right now! Just when I thought I knew this stuff, I don't!!!!! ughhhhhh

CPA628 – maybe I'm just extremely tired, but have you seen the simulation for partnerships within Wiley? I'm looking at the 2012 version. Are you? If so, I'm stuck on one that breaks down the balance sheet and tax basis. I can't imagine there being many simulations on partnerships, if you know which one I'm referring to, isn't the tax basis for each partner in the partnership suppose to decrease by the amount of liability taken on by other partners and increase by the amount liability assumed from other partners? It's passed midnight…maybe I'm missing something but this simulation is throwing me off completely! I don't see the tax basis doing this.

Exam in 1 week and I haven't even started reviewing law yet =(

[Author]

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