A calendar year corp. has substantial accumulated E&P, but it expects to incur a deficit in current E&P for the year due

Question

3 years ago

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A calendar year corp. has substantial accumulated E&P, but it expects to incur a deficit in current E&P for the year due

to significant losses in the last half of the year. A cash distribution to its shareholders on January 1 should result in a return of capital. Comment on the validity of this statement.

Business

1 answer:

Vadim26 [7] · Answer 1 · 2022-01-21T10:57:13+03:00

Answer:

The statement is inaccurate.

Explanation:

Comment on the validity of this statement. LO 3 (p. 19-9).

The statement is inaccurate. When a deficit exists in current E & P and a positive balance exists in accumulated E & P, the accounts are netted at the date of distribution. If a positive balance results, the distribution is a divide to the extent of the balance. Any loss in current E & P is deemed to accrue ratably throughout the year unless the parties can show otherwise.