Faith and Broderick each own 50% of Mink Corporation, a calendar year taxpayer. Distributions from Mink are: $750,000 to Faith on April 1 and $250,000 to Broderick on May 1. Mink's current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Broderick's distribution?1. $150,0002. $03. $300,0004. $75,000

Option (4) is correct.

Explanation:

Given that,

Faith and Broderick each own 50% of Mink Corporation

Distribution from Mink to Faith on April 1 = $750,000

Distribution from Mink to Broderick on May 1 = $250,000

Mink's current E & P = $300,000

Mink's accumulated E & P = $600,000

Previous accumulated E&P:

= Accumulated E & P - Current E &P

= $600,000 - $300,000

= $300,000

Distribution in the ratio:

= Distribution from Mink to Broderick on May 1 : Total distributions

= $250,000 : ($750,000 + $250,000)

= $250,000 : $1,000,000

= 25%

Therefore, distributed to Broderick:

= Previous accumulated E&P * Distribution ratio

= $300,000 * 25%

= $75,000.

Hence, the accumulated E & P is allocated to Broderick's distribution is $75,000.