Purple Corporation has accumulated E & P of $100,000 on January 1, 2019. In 2019, Purple has current E & P of $130,000 (before any distribution). On December 31, 2019, the corporation distributes $250,000 to its sole shareholder, Cindy (an individual). Purple Corporation’s E & P as of January 1, 2020 is:

The E & P ($20,000)

Explanation:

E & P January 2019     $100,000

For the year E & P       $130,000

Closing E & P December 31,2019   $230,000

Less: Dividends paid                       ($250,000)

Net Deficit in earnings                    ($20,000)

Although dividends are always paid to the extent of retained earnings but in this question, dividends have exceeded earnings which is only and only assumption not a practical world question.

Purple Corporation’s E & P as of January 1, 2020 is  -$20,000

Explanation:

Given

Accumulated amount =   $100,000

current amount =    $130,000

Distributed amount = $250,000

To know the total amount accumulated, we use the formula;

Total accumulated amount = accumulated amount + current amount had

                                                 =$100,000 +$130,000

                                                 =$230,000

Corporation’s E & P as of January 1, 2020 =

                      Total accumulated amount - distributed amount

                                                       = $230,000 - $250,000

                                                       = -$20,000

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