Purple Corporation has accumulated E & P of $100,000 on January 1, 2011. In 2011, Purple has current E & P of $130,000 (before any distribution). On December 31, 2011, the corporation distributes $250,000 to its sole shareholder, Cindy (an individual). Purple Corporation's E & P as of January 1, 2012 is:

Question

Quizplus · Accepted Answer

Purple Corporation's E & P as of January 1, 2012 is $0 because the distribution of $250,000 exceeded the current E & P of $130,000, resulting in a negative E & P of $120,000. This negative E & P is then applied to the accumulated E & P of $100,000, resulting in an E & P of $0 as of January 1, 2012.

Purple Corporation Has Accumulated E & P of $100,000 on January