Good Times Corporation has a $60,000 accumulated E&P balance at the beginning of the year and incurs a $100,000 deficit during the year. Because of its poor operating performance, Good Times pays only three of its usual $10,000 quarterly dividend payments to its sole shareholder: those ordinarily paid March 31, June 30, and September 30. How are the March 31, June 30, and September 30 payments of $10,000 treated?

Question

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The first payment is a dividend because it is made from accumulated E&P. The second and third payments are returns of capital because they are made from paid-in capital.

Good Times Corporation Has a $60,000 Accumulated E&P Balance at the Beginning