Question

16. LO.3 On January 1 of the current year, Rhondell Corporation has accumulated E&P of $13,000. Current E&P for the year is $84,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year: a total of $42,000 ($21,000 to Elizabeth and $21,000 to Jonathan) on April 30 and a total of $58,000 ($29,000 to Jonathan and $29,000 to Marshall) on December 31 Determine the allocation of the distributions by completing the table below. Assume that the shareholders have sufficient basis in their stock for any amount that is treated as return of capital From Current E&P From Accumulated E&P Treated as Return of Capital April 30 distribution of $42,000 December 31 distribution of $58,000

Answer 1

Particulars	in $
Accumulated E&P	13,000
Current E&P	84,000
Total	97,000
	A	B	C -Current E&P*B		D = (A-C) (subject to balance available in Accumulated E&P)	Balance
Particulars	in $	Percentage	From Current E&P		From Accumulated E&P	Treated as Return of Capital
30 April distribution of $ 42,000	42,000	42%	35,280	(84000 *42%)	6,720
31 December distribution of $ 58,000	58,000	58%	48,720	(84000 *58%)	6,280	3,000
Total	100,000				13,000
Treated as Return of Capital	3,000
(Total Distribution - Total Available in E&P)	(100000-97000)
					Restricted to 6,280