Starling Corporation has accumulated E & P of $60,000 on January 1, 2019. In 2019, Starling Corporation had an operating loss of $80,000. It distributed cash of $40,000 to Zoe, its sole shareholder, on December 31, 2019. Starling Corporation's balance in its E & P account as of January 1, 2020, is:

Question

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The E & P balance as of January 1, 2020, would be a $20,000 deficit. This is calculated by starting with the accumulated E & P of $60,000, subtracting the operating loss of $80,000 (which reduces E & P), and then subtracting the $40,000 distribution to Zoe. The net effect is a $60,000 reduction from the operating loss and a $40,000 reduction from the distribution, totaling a $100,000 reduction from the original $60,000, resulting in a $20,000 deficit.

Starling Corporation Has Accumulated E & P of $60,000 on January