A finished ACC-669 Topic 4 earnings and profits schedule example, deriving $90,000 of current earnings and profits from taxable income and characterizing one distribution under two different earnings histories. Searches like "acc 669 topic 4 assignment example", "acc669 topic 4 sample" and "acc-669 topic 4 example" land here.
What a finished ACC-669 Topic 4 earnings and profits schedule looks like
The finished schedule starts at $100,000 of taxable income. It adds back $6,000 of municipal interest, the $10,000 dividends-received deduction and $15,000 by which tax depreciation exceeds the alternative depreciation system figure that section 312(k) requires, then subtracts $21,000 of federal income tax, a $5,000 fine, $4,000 of disallowed meals and an $11,000 net capital loss, reaching $90,000 of current earnings and profits. In the first panel the corporation starts the year with a $60,000 accumulated deficit and pays its sole shareholder $120,000 on July 1. Under section 316 the first $90,000 is a dividend out of current earnings despite the deficit, and the remaining $30,000 returns capital, cutting her $50,000 stock basis to $20,000. The second panel reverses the pattern and produces $20,000 of capital gain.
How an ACC-669 Topic 4 example is structured
The schedule has three parts: the computation, the two panels and a carryforward. The computation begins with taxable income and groups its adjustments by reason, items excluded from taxable income but available to pay dividends, deductions that earnings and profits measure differently, and expenditures that reduce earnings and profits although the return never deducted them. Each line names its basis in section 312 or the regulations. The first panel then applies the ordering rules: current earnings and profits first, allocated to the year's distributions, and accumulated earnings and profits only after. The second panel sets a $40,000 current deficit against $70,000 of accumulated earnings, prorates the deficit to the July 1 date, and finds $50,000 available. Both panels end with the shareholder's remaining basis and any gain under section 301(c). The carryforward line states accumulated earnings and profits at the start of the next year.
Current earnings built from taxable income
Three additions and four subtractions move $100,000 of taxable income to $90,000 of current earnings and profits, each one labeled with the reason it differs.
Depreciation remeasured under section 312(k)
Tax depreciation of $40,000 is replaced by $25,000 under the alternative depreciation system, so earnings and profits rise by the $15,000 difference.
A dividend despite an accumulated deficit
Because section 316 reaches current earnings and profits first, the $90,000 is a dividend even though the corporation began the year $60,000 in deficit.
A current deficit prorated to the date
In the second panel, half of the $40,000 current deficit is charged against accumulated earnings by July 1, treated as mid-year, leaving $50,000 to support dividend treatment.
Basis and gain carried to the end
Each panel closes with the shareholder's basis after the return of capital and any gain beyond it, $20,000 of capital gain in the second case.
Where marks go in ACC-669 Topic 4
Calling the $120,000 a dividend, or a return of capital, before any earnings and profits figure appears is the loss most papers take here. A second common error uses taxable income as if it were earnings and profits, which here overstates the figure by $10,000 and misses why the two differ. Papers that see the accumulated deficit in the first panel and treat the whole distribution as a return of capital overlook the priority section 316 gives current earnings. The reverse mistake in the second panel, ignoring the current deficit because accumulated earnings are positive, overstates the dividend by $20,000. Depreciation left at the tax figure skips section 312(k). Schedules that stop at character, without carrying basis and the year-end accumulated balance forward, leave the next distribution unanalyzable.
Get an ACC-669 Topic 4 example written to your instructions
Send the ACC-669 Topic 4 instructions, the rubric and the corporation's figures from your case. A custom example is written to them, with current earnings and profits built from taxable income, each adjustment explained, current and accumulated amounts applied in order and basis carried forward, back in 24 to 48 hours. The first one is free.
ACC-669 Topic 4 questions, answered
Why is earnings and profits different from taxable income?
Because it measures the corporation's economic capacity to pay dividends, not the income the Code chooses to tax. Tax-exempt interest and the dividends-received deduction keep amounts out of taxable income that the corporation can still distribute, so they are added back. Federal income tax, fines and other nondeductible payments reduce the cash available even though the return never deducted them, so they come out.
How can there be a dividend when accumulated earnings are negative?
Under section 316, a distribution is a dividend to the extent it comes from the current year's earnings and profits or from accumulated earnings and profits, and the current-year test is applied without regard to any accumulated deficit. A corporation that earns $90,000 this year can pay a $90,000 dividend while still carrying a deficit from earlier years, which is exactly the first panel's result.
What happens to the amount that is not a dividend?
Under section 301(c), it first reduces the shareholder's stock basis as a return of capital, and whatever exceeds basis is taxed as though the stock had been sold, which usually means capital gain. In the first panel the $30,000 excess only lowers basis to $20,000. In the second, $70,000 exceeds the $50,000 basis, so $20,000 is gain.