On January 1 of the current year, Rhondell Corporation has accumulated E & P of

Question

On January 1 of the current year, Rhondell Corporation has accumulated E & P of $23,000. Current E & P for the year is $84,000, 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 $50,000 ($25,000 to Elizabeth and $25,000 to Jonathan) on April 30 and a total of $60,000 ($30,000 to Jonathan and $30,000 Marshall) on December 31. Determine the allocation of the distributions by completing the table below. Assume the shareholders have sufficient basis in their stock for any amount that is treated as return of capital. Round any division to 6 decimal places. If required, round your computations to the nearest dollar and use rounded amounts in subsequent computations. If an amount is zero, enter "0". From Current E & P From Accumulated E & P Treated as Return of Capital April 30 distribution of $50,000 $ 84,000 $ 23,000 $ 0 December 31 distribution of $60,000 $ 84,000 $ 37,000 $ 0

Explanation / Answer

Accumulated EP $23,000 chronological Current EP $84,000 (pro-rata) $107,000 $50,000 $60,000 Distribution $110,000 110000-107000 = 3000 have to be taken care of 30-Apr 50000 12-Dec 60000 30-Apr current EP ACC EP Return on Cap 38182 11818 31-Dec 45818 14182 3000 * 50000/110000*84000 38182 50000-38182 11818 ** 60000/110000*84000 45818 60000-45818 14182

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