McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 63

Spartan Corporation redeemed 25% of its shares for $2,000 on July 1, 2011, in a transaction that qualified as an exchange under §302(a). Spartan's accumulated E P on January 1, 2011 was $2,000. Its current E P for 2011 was $12,000. During 2011, Spartan made dividend distributions of $1,000 on June 1 and $4,000 on August 31. Determine the beginning balance in Spartan's accumulated E P at January 1, 2011. See Rev. Rul. 74-338, 1974-2 C.B. 101 and Rev. Rul. 74-339, 1974-2 C.B. 103 for help in making this calculation.