Bruin Company reports current E&P of $200,000 in year 1 and accumulated E&P at the beginning of the year of $100,000.Bruin distributed $400,000 to its sole shareholder on January 1, year 1.How much of the distribution is treated as a dividend in year 1?
A)$400,000.
B)$300,000.
C)$200,000.
D)$100,000.

Question

Quizplus · Accepted Answer

Bruin distributed more than its accumulated E&P at the beginning of the year ($400,000 > $100,000). Therefore, the first $100,000 distributed is considered a return of capital, and the remaining $300,000 is considered a dividend. The current E&P of $200,000 is not sufficient to cover the entire dividend, so only $200,000 out of the $300,000 is treated as a dividend in year 1.

Bruin Company Reports Current E&P of $200,000 in Year 1