Answer:
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.
