Question

Tiny and Tim each owns half of the 100 outstanding shares of Flower Corporation. This year, Flower reported taxable income of 6,000. In addition, Flower received20,000 of life insurance proceeds due to the death of an employee (Flower paid 500 in life insurance premiums this year). Flower had5,000 of accumulated earnings and profits at the beginning of the year. What is the amount of Flower Corporation's accumulated earnings and profits at the end of the year?

1) $5,000
2) $10,000
3) $15,000
4) $20,000

Answer 1

The accumulated earnings and profits at the end of the year can be calculated by considering the taxable income, life insurance proceeds, and the accumulated earnings and profits at the beginning of the year.

The accumulated earnings and profits at the end of the year can be calculated by considering the taxable income, life insurance proceeds, and the accumulated earnings and profits at the beginning of the year.

1. Start with the accumulated earnings and profits at the beginning of the year, which is given as $5,000.
2. Add the taxable income for the year, which is $6,000.
3. Add the life insurance proceeds ($20,000) and subtract the life insurance premiums paid ($500), which gives a net increase of $19,500.
4. Finally, add the net increase to the accumulated earnings and profits at the beginning of the year: $5,000 + $6,000 + $19,500 = $30,500.

Therefore, the amount of Flower Corporation's accumulated earnings and profits at the end of the year is $30,500.