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19 June, 00:40

Faith and Broderick each own 50% of Mink Corporation, a calendar year taxpayer. Distributions from Mink are: $750,000 to Faith on April 1 and $250,000 to Broderick on May 1. Mink's current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Broderick's distribution?1. $150,0002. $03. $300,0004. $75,000

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  1. 19 June, 00:49
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    Option (4) is correct.

    Explanation:

    Given that,

    Faith and Broderick each own 50% of Mink Corporation

    Distribution from Mink to Faith on April 1 = $750,000

    Distribution from Mink to Broderick on May 1 = $250,000

    Mink's current E & P = $300,000

    Mink's accumulated E & P = $600,000

    Previous accumulated E&P:

    = Accumulated E & P - Current E &P

    = $600,000 - $300,000

    = $300,000

    Distribution in the ratio:

    = Distribution from Mink to Broderick on May 1 : Total distributions

    = $250,000 : ($750,000 + $250,000)

    = $250,000 : $1,000,000

    = 25%

    Therefore, distributed to Broderick:

    = Previous accumulated E&P * Distribution ratio

    = $300,000 * 25%

    = $75,000.

    Hence, the accumulated E & P is allocated to Broderick's distribution is $75,000.
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