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 Topic: I am going to kill you, REG!!!!! ( Topic Closed)
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gjtseng
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Joined: 26 Jan 2012
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| Posted: 07 Feb 2012 at 08:45 | IP Logged
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Bridge, a C corporation, had $15,000 in accumulated earnings and profits at the beginning of the current year. During the current year, Bridge reported earnings and profits of $10,000 and paid $20,000 in cash distributions to its shareholders in both March and July. What amount of the July distribution should be classified as dividend income to Bridge's shareholders?
a. $20,000
b. $15,000
c. $10,000
d. $5,000
The answer said 5,000 is the correct answer
Why? i thought the dividend income will be 25,000 and the 15,000 will be return of capital
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CPA#1
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| Posted: 07 Feb 2012 at 11:52 | IP Logged
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A tricky question, but the answer to it is very simple...
$15,000 in accumulated earnings and profits
+ 10,000 current earnings and
profits
====
$25,000 total E&P
Dividends are limited to E&P. We distributed $20,000 in March. So, all of that is dividend income since we have enough E&P.
$25,000 E&P minus $20,000 distribution = $5,000 E&P left over.
So, only $5,000 of the remaining E&P can be classified as dividends for July's distribution. The remaining $15,000 will be a reduction of the stock basis and then the rest is Capital Gain.
So yes, the total dividend income for both distributions is $25,000, but that's not what they're asking. They're asking for the dividend income for JULY's distribution.
So, as what Phil Yaeger says... RTFQ, which means, Read The Question. And Phil will not tell us what the F means. ;)
__________________
FAR: 52,66,73,61,89
AUD: 47,87
BEC: 80
REG: 64,74,84
DONE!!!!!!!
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mcannon1104
Regular
Joined: 10 Jul 2010
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| Posted: 07 Feb 2012 at 13:03 | IP Logged
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Good answer, CPA#1. Though I took REG last November, I did this one in my head. Guess Phil drilled it in there!
__________________
FAR Oct 2010 83
BEC Nov 2010 83
AUD Apr 2011 73
AUD Aug 2011 87
REG Nov 2011 75
Licensed CPA in Indiana
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CPA#1
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| Posted: 07 Feb 2012 at 16:06 | IP Logged
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I admit, I'm 3 down and 1 to go with these tests, but I still struggle with that RTFQ advice. The thing is, they always find new ways to trick you. I slap myself all the time for making careless errors due to me not reading carefully, but I still keep making careless mistakes. Very frustrating.
__________________
FAR: 52,66,73,61,89
AUD: 47,87
BEC: 80
REG: 64,74,84
DONE!!!!!!!
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gjtseng
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Posts: 51
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| Posted: 07 Feb 2012 at 20:27 | IP Logged
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CPA#1
Thx! I agree with you. I should have read the question more carefully!
Good luck! ^^
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