Question

Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2019. During 2020, Lonergan, Inc., distributes $140,000 to its shareholders, while sustaining an ordinary loss of $120,000. Calculate the balance in Lonergan’s AAA and AEP accounts at the end of 2020.

Answer 1

Answer:

Explanation:

                                                                      AAA                   AEP

Beginning balance, 1/1/20                           200,000        110,000

Less: Distributions                                          (140,000)            (0)

Less: Loss (ordinary)                                  (120,000)            (0)

Ending Balance                                           (60,000)       110,000

Here AAA is adjusted first for the distributions and then for the loss. The negative balance must be restored to a positive before the shareholders may receive any distributions that will not be taxed as dividend income.