This year, Sooner Company reports current E&P of negative $424,000. Its accumula

Question

This year, Sooner Company reports current E&P of negative $424,000. Its accumulated E&P at the beginning of the year was $354,000. Sooner distributed $708,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $122,500.

a. How much of the $708,000 distribution is treated as a dividend to Boomer?

Dividend $142,000

b. What is Boomer’s tax basis in his Sooner stock after the distribution?

Tax basis $0

c. What is Sooner’s balance in accumulated E&P on the first day of next year?

Balance in accumulated E & P $

Explanation / Answer

(a) How much of the $708,000 distribution is treated as a dividend to Boomer? Compute the Accumulated E&P as of June 30 Current year E&P (Negitive) =$424000*6/12 =$212000 Net E&P =$354000-$212000 =$142000 Dividend is the Amount equal to the amount distributed to the extent of E&P. So the Dividend Amount is $142000 (b) What is Boomer’s tax basis in his Sooner stock after the distribution? Boomer’s tax basis in his Sooner stock is $0, which is his beginning tax basis of $122,500 less the lesser of the distribution in excess of accumulated E&P ($566,000) or his basis in the Sooner stock ($122,500). (c ) What is Sooner’s balance in accumulated E&P on the first day of next year? Amount in $ Accumulated E&P Beginning of the year 354000 Currnet E&P -424000 Less: Dividend paid -142000 Accumulated E&P at the end of the year -212000 Sooner’s balance in accumulated E&P on the first day of next year is ($212,000)

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