REG MCQ Question – Earnings and Profits

  • Creator
    Topic
  • #1578493

    This is a question from Ninja MCQ…

    Kent Corp. is a calendar-year, accrual-basis, C corporation. In the current year, Kent made a nonliquidating distribution of property with an adjusted basis of $150,000 and a fair market value of $200,000 to Reed, its sole shareholder. The following information pertains to Kent:

    Reed’s basis in Kent stock at January 1 $500,000
    Accumulated earnings and profits at
    January 1 125,000
    Current earnings and profits, including
    the effects of this distribution 60,000

    What was taxable as dividend income to Reed for the current year?

    A.
    $60,000

    B.
    $150,000

    C.
    $185,000

    Incorrect D.
    $200,000

    Ninja says the correct answer is C. However, in Becker, it states that a dividend of property increases Current Earnings and Profit by the gain. Therefore, the CE&P should increase to $110,000. That makes enough E&P for the distribution to be a “Taxable dividend” to the recipient.

    Any thoughts on this?

Viewing 9 replies - 1 through 9 (of 9 total)
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  • #1578578

    Anyone?

    Becker has this exact same question in their software, and they say the answer is $200,000.

    #1578590
    Holly
    Participant

    What are the question numbers in both softwares?

    AUD - 76
    BEC - 82
    FAR - 82
    REG - 86
    Becker & Ninja MCQ

     

     

     

    BEC - 79
    REG - 85
    AUD - 5/27/16

    #1578613

    Ninja #1307

    Becker: CPA-02092

    #1578625
    Holly
    Participant

    I just came across one with similar info 1357 in NINJA. When I finish this group of questions I'll look at those and see if anything makes sense to me.

    AUD - 76
    BEC - 82
    FAR - 82
    REG - 86
    Becker & Ninja MCQ

     

     

     

    BEC - 79
    REG - 85
    AUD - 5/27/16

    #1578640

    I see from your signature that you use Becker. Tim Gearty was pretty adamant in the lectures about mentioning that as being an “exam trick.” I am fairly certain that the corporation must recognize a gain and increase their earnings and profits.

    #1578644
    Holly
    Participant

    The NINJA one specifically says $60k including the effects of this distribution, so it wouldn't increase to $110,000 = $185K

    AUD - 76
    BEC - 82
    FAR - 82
    REG - 86
    Becker & Ninja MCQ

     

     

     

    BEC - 79
    REG - 85
    AUD - 5/27/16

    #1578778
    Julia
    Participant

    I agree w $200,000. I have seen in various places the gain is added to the acc e/p.

    Reg July 3

    Bec Sept 8

    #1578808
    Holly
    Participant

    @Julia the gain is added and the correct answer is $200k in Becker; however, the gain is already added in NINJA's $60k (Current earnings and profits, including
    the effects of this distribution
    60,000) so the total can only be $185k = dividend to shareholder to extent of total e&p. See Becker R4-66 & 67.

    AUD - 76
    BEC - 82
    FAR - 82
    REG - 86
    Becker & Ninja MCQ

     

     

     

    BEC - 79
    REG - 85
    AUD - 5/27/16

    #1578854
    Anonymous
    Inactive

    I agree with Holly, since 60,000 includes the effects of the distribution, if you were to add the gain of 50,000 you would be double counting, hence 185,000 makes sense.

Viewing 9 replies - 1 through 9 (of 9 total)
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