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Dividend Payment and Accumulated E and P

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For each of the following independent situations, complete the table by computing the dividend payment and accumulated E&P at the beginning of year 2.

Accumulated
E&P 1/1/
Year 1
Cash
Distribution
Current
E&P
Dividend
Payment Accumulated
E&P 1/1/
Year 2
Situation 1 $190,000 $100,000 $150,000
Situation 2 55,000 100,000 80,000
Situation 3 (50,000) 100,000 133,700
Situation 4 (18,000) 100,000 (48,000)
Situation 5 160,000 100,000 (42,900)
Situation 6 -0- 100,000 (72,500)

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This solution is comprised of a detailed explanation to complete the table by computing the dividend payment and accumulated E&P at the beginning of year 2.

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Cash distribution to the shareholder is a "dividend," but the dividend amount is limited to the distributing corporation's earnings and profits amount. However, if the total amount of accumulated E&P is not enough, the amount of cash ...

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