Tomika Corporation has current and accumulated earnings and profits of $0. Tomika distributes $10,000 to its sole shareholder, Alana. What are Tomika's earnings and profits after the distribution?
A)$0
B)($10,000)
C)$10,000
D)none of the above

Question

Quizplus · Accepted Answer

Since Tomika Corporation had $0 in current and accumulated earnings and profits before the distribution, the distribution of $10,000 does not change the earnings and profits balance. Earnings and profits are not directly decreased by distributions; instead, distributions are made from earnings and profits. With none available, the distribution does not create a negative balance but is considered a return of capital or a capital gain to the shareholder.

Tomika Corporation Has Current and Accumulated Earnings and Profits of $0