This year, Sooner Company reports current E&P of negative $424,000. Its accumula

Question

This year, Sooner Company reports current E&P of negative $424,000. Its accumulated E&P at the beginning of the year was $354,000. Sooner distributed $708,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $122,500.

A) How much of the $708,000 distribution is treated as a dividend to Boomer?

B) What is Boomer’s tax basis in his Sooner stock after the distribution?

C) What is Sooner’s balance in accumulated E&P on the first day of next year?

Explanation / Answer

a>

Accumulated E&P at the beginning of the year that is 1st January 2017 = $354,000

THe deficit in the currect E&P as on June 30th of this year = [Current E&P*(Total number of days from 1st January 2017 to 30th June 2017)]/(Total days in 2017)

=> The deficit in the currect E&P as on June 30th of this year = [-424000*181]/365 = - $ 210257.534

Hence Boomer Wells reports a dividend of = accumulated E&P at the beginning of the year + The deficit in the currect E&P as on June 30th of this year

= 354,000 + (-210257.534) = $ 143742.466

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