Pressley Corporation was incorporated on January 1, 2004. The corporation made its S election on March 1, 2008. The corporation retains an E&P balance from its C corporation days. During the current year, it made a cash distribution to its sole shareholder Robert Pressley. What is the proper sequence in reducing the corporate earnings accounts for the distribution?

Question

Quizplus · Accepted Answer

The proper sequence for reducing corporate earnings accounts for an S corporation with accumulated earnings and profits (E&P) from its C corporation days is to first reduce the Accumulated Adjustments Account (AAA) and then the E&P.

Pressley Corporation Was Incorporated on January 1, 2004