Tax practice exam | Business & Finance homework help
Using the information provided about Fly by Night, Inc., we can calculate its total E&P on July 1. The company had an accumulated E&P at January 1 of $200,000 as well as a current deficit in E&P for the year of $90,000. Therefore, its total E&P on July 1 would be $110,000 ($200k + -$90k).
Since Fly by Night distributed $210k during this period but only had a total accumulated E & P of $110k on July 1st (of leap year), it would mean that 100% ($210k/$110k) or all of their distributions were considered dividends according to IRS rules – anything distributed beyond what has been accrued must be treated as dividends rather than corporate profit.
It is important to note that this scenario assumes that none of the previously earned profits have been used for expenses or other purposes before July 1 – if any funds were used for these purposes prior to making this distribution then only some portion would have been deemed dividend payments with the remainder being categorized under other income types such as salary or non-operating income. Furthermore, certain types of distributions may also not qualify as dividends depending on their purpose; therefore additional research should be conducted when needed.