Question

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:_______

Answer 1

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

Step-by-step 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

Answer 2

The E & P ($20,000)

Step-by-step 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.