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meacpa_2011
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Posted: 16 Nov 2011 at 03:11 \| IP Logged

meacpa_2011 wrote:

In contn of above, in the same simulation there is calculation no.3 & 4 also, which is confusing. In order to find out the amount of dividend, there is some calc done which I am not familiar with.

If the accm E&P is 40000 and the current E&P (55000) is and the distribution is 15000, the dividend has been calculated as:

40000-[1/2 of 55000] = 12500 and and the remaining portion of (55000), ie. 27500 is treated as accm E&P at beg of 2010.

I am not able to understand this calc, ppl who are using wiley, have u come across this? Could you understand ?

If yes, request some clarification on this.

Divya, do u know how this dividend has been arrived at ? ie, this calc of 40000-(1/2 of 55000) = 12500 and the remaining portion of (55000) 27500 is treated as accm E&P at beg of next year. This is not a formula that I am familiar with.

The call of the question is to find out the amount of dividend with the foll facts:

If the accm E&P is 40000 and the current E&P (55000) is and the distribution is 15000. Also we have to find out the accm E&P at beg of next yr.

Do u know the solution to this?? Thanks very much in advance.

divyagovil1
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Posted: 16 Nov 2011 at 03:26 \| IP Logged

meacpa_2011 wrote:

In contn of above, in the same
simulation there is calculation no.3 & 4 also, which is
confusing. In order to find out the amount of dividend,
there is some calc done which I am not familiar with.

If the accm E&P is 40000 and the current E&P (55000)
is and the distribution is 15000, the dividend has been
calculated as:

40000-[1/2 of 55000] = 12500 and and the remaining
portion of (55000), ie. 27500 is treated as accm E&P at
beg of 2010.

I am not able to understand this calc, ppl who are
using wiley, have u come across this? Could you
understand ?

If yes, request some clarification on this.

What's the distribution date provided in the simulation.
I guess it must be June 30 or July 1.

Here's my understanding:

When current E&P is negative and beginning accumulated
E&P is positive:

Negative current E&P is prorated to the distribution date
(excluding the distribution date itself) and subtracted
from beginning accumulated E&P;

Distribution is deemed to be paid out of E&P to the
extent that the number above is positive.

Thus, if the distribution date in the above question is
June 30 or July 1, then current negative E&P pro-
rated = 55,000*6/12 = $27,500

Accum positiveE&P at the beg $40,000
less. current E&P pro-rated (27,500)
Balance $12,500 dividends which can be distributed

Thus, accum E&P at the end =

accum E&P at beg 40,000
Current E&P (55,000)
less. dividends (12,500)
accum E&P at end (27,500)

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Divya - CO State

Passed using Becker Review :
FAR - 04/11/09 - 94
BEC - 05/30/09 - 86
REG - 08/29/09 - 95
AUD - 11/21/09 - 92
Ethics - 2011

meacpa_2011
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Posted: 16 Nov 2011 at 03:53 \| IP Logged

Yes Divya, the date of distribution is mentioned as July 1 of the year. So the apportionment of current E&P makes sense. But there was only one dividend declared in this question. The current E&P that is prorated, what if there were two dividends in a yr. Say one on March1 and other in July1. For Dividend on march do we prorate for 2 months and then how many months for July?

Also regarding the accm E&P calc for beg of next yr: my understanding was that a current distribution of dividend cannot create or increase a deficit in E&P.

Actually the expln given by you totally matches with the answer mentioned, it wasnt expl in the software. What u said makes sense. But do u know about whether a current distribution can increase a deficit in E&P?

divyagovil1
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Joined: 30 Jan 2009
Location: India
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Posted: 16 Nov 2011 at 04:21 \| IP Logged

meacpa_2011 wrote:

But do u know about whether a
current distribution can increase a deficit in E&P?

The current distribution cannot increase a deficit
in E&P.

In the above ques, we had positive balance in accum E&P
and negative current E&P. In this case, we netted both
and only allocated pro-rated amount as dividends.

(Negative current E&P is assumed to occur evenly
throughout the year so it is allocated on the basis of
the number of days in the tax year to the
date of distribution)

----- Now; in case, if both current and accumulated E&P
are negative, then distributions would not be dividends.
The distributions would be return of capital.-----

---- Distributions in excess of current and accumulated
E&P are a return of capital and reduce the shares basis
in a shareholder's stock. However, these distributions
cannot create an E&P deficit. Deficits arise only from
losses.----

__________________
Divya - CO State

Passed using Becker Review :
FAR - 04/11/09 - 94
BEC - 05/30/09 - 86
REG - 08/29/09 - 95
AUD - 11/21/09 - 92
Ethics - 2011

meacpa_2011
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Joined: 25 Oct 2011
Location: United States
Online Status: Offline
Posts: 31

Posted: 16 Nov 2011 at 04:52 \| IP Logged

Thanks Divya. Its all clear now :):) Good luck for the future....!!

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