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Orleans Inc.

1. a. Orleans Inc. distributed $500,000 in a year in which its current E&P was $400,000 and it accumulated E&P was a negative $750,000. How much of this distribution was a dividend to Orleans's shareholders? Explain your rational, citing appropriate authorities.

b. Mr. Smith, CEO of Orleans Inc, has asked for clarification on the difference between retained earnings and E&P. How would you explain it to him? I encourage you to think outside of the box on this one!

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1. a. Orleans Inc. distributed $500,000 in a year in which its current E&P was $400,000 and it accumulated E&P was a negative $750,000. How much of this distribution was a dividend to Orleans's shareholders? Explain your rational, citing appropriate authorities.

Orleans Inc distributed $500,000 to its shareholders. For this I take the perspective of taxation. A dividend is taxable under Section 115 only if it is paid from E&P accumulated after February 28, 1913 or from the E&P of the taxable year. In this case the accumulated E&P is negative $750,000. However, in the taxable year the E&P is $400,000 so ...

Solution Summary

Orleans Inc. is discussed very comprehensively in this explanation.

$2.19