A calendar-year corporation has positive current E&P of $500 and accumulated negative E&P of $1,200.The corporation makes a $400 distribution to its sole shareholder.Which of the following statements is true?
A)The distribution will not be a dividend because total earnings and profits is negative $700.
B)The distribution may be a dividend, depending on whether total earnings and profits at the date of the distribution is positive.
C)The distribution will be a dividend because current earnings and profits is positive and exceeds the distribution.
D)A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in earnings and profits.

Question

Quizplus · Accepted Answer

The distribution will be considered a dividend to the extent of current E&P, which is $500 in this case, and since the distribution is $400, it is fully covered by the current E&P, making it a dividend.

A Calendar-Year Corporation Has Positive Current E&P of $500 and Accumulated