A calendar-year corporation has negative current E&P of $500 and accumulated positive E&P of $1,000.The corporation makes a $600 distribution to its sole shareholder.Which of the following statements is true?
A)$500 of the distribution will be a dividend because total earnings and profits is $500.
B)$0 of the distribution will be a dividend because current earnings and profits is negative.
C)$600 of the distribution will be a dividend because accumulated earnings and profits is $1,000.
D)Up to $600 of the distribution could be a dividend depending on the balance in accumulated earnings and profits on the date of the distribution.

Question

Quizplus · Accepted Answer

The distribution will be considered a dividend to the extent of the corporation's current and accumulated E&P. Since current E&P is negative ($500) and the distribution exceeds accumulated E&P ($1,000), the distribution will be considered a dividend from accumulated E&P up to the amount of the distribution ($600). Therefore, up to $600 of the distribution could be a dividend depending on the balance in accumulated earnings and profits on the date of the distribution.

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