Question

Stacey and Andrew each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer. Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1. If Parakeet’s current E & P is $60,000, how much is allocated to Andrew’s distribution? Group of answer choices
1. $5,000
2. $10,000
3. $48,000
4. $150,000
5. None of the above

Answer 1

Answer:

Option 3

Explanation:

Earnings & profits (E&P) is the measure of a corporation’s economic ability to pay dividends to its shareholders. An up-to-date E&P calculation is important for many corporate transactions, including determining whether a distribution to shareholders is a taxable dividend.

The E&P allocated to Andrew's distribution

= 160,000 * 150,000/(350,000+150,000)

= 160,000 * 150,000/500,000

= 48,000

Option C