In each of the following scenarios, calculate the accumulated earnings credit. Assume the corporation uses a calendar year as its tax year. Also assume that it realizes no current year capital gains.
a. Frank Corporation, a manufacturer of plastic toys, started business last year and reported E&P of $50,000. In the current year, the corporation reports E&P of $150,000 and pays no dividends. Of the $150,000 current E&P, the corporation retains $130,000 to meet its business needs.
b. How would your answer to Part a change if Frank were a service company that provides accounting services?
c. Hall Corporation’s accumulated E&P balance at January 1 of the current year is $200,000. During the year, Hall, a glass container manufacturer, reports $100,000 of current E&P, all of which is retained to meet the reasonable needs of the business. Hall pays no dividends.