I came to the answer with a different view point, I don't know how far I am correct in my view point but i got the correct answer.

As mentioned in the question, it is a C corporation not a partnership or S corporation (which also treated as a partnership). Therefore, ALL earnings, whether accumulated or current, will remain with the corporation unless it is declared as dividend to the shareholder. The only declation of the income, in the question, was property NON-LIQUIDATING dividend, that will be considered as income in the hands of the shareholder, at FMV, for the year.

Correct me if I am wrong.

Thanks

arushi_13 wrote: I read in your signature line "Employment in Fraud Examination and Forensic Accounting." It seems really interesting. Could you please advice as to are there any certifications or courses or exams that one needs to do for it. I am currently exploring other options after CPA and any help will be greatly appreciated.

You're welcome.

The American Association of Certified Fraud Examiners: http://www.acfe.com/

There is an exam and a work experience requirement for this certification.  No, I haven't applied for it yet.  It was more important right now to get the CPA completed.

The corporation can only make a taxable distribution to the extent that there are current and accumulated earnings to distribute.  The question gave a situation where the current and accumulated earnings were less than the FMV of the property which was to be distributed.

In Becker's question, as a result of the property distribution, total current earnings had to be recalculated.  The difference between the BV and the FMV of the property had to be added to current earnings from operations.

Wiley's question assumed that the current earnings as given in the question was equal to total earnings including the gain on the property.

Addendum:

The company can make a distribution of earnings in any format it pleases.  If they wanted to hold onto cash for whatever reason, they could distribute their earnings by handing over anything else with the same FMV.

Thank you for a detail clarification. But even by doing this recalculation process, the answer would remain the same, as the corporation declared on only $200,000 as dividend. Now the question arises, is it worth spending time in the exam for recalculation etc. or include the declared dividend amount in the taxable income of the receipient? Pls. explain.

Thanks,