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

Exercise 24

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..101 and Rev.Rul.74-339, 1974-2 C..103 for help in making this calculation.