Borneo Corporation has $21,000 in current earnings and profits and $5,000 of accumulated earnings and profits.Borneo distributes $20,000 of income to its shareholders on June 15 and another $10,000 on December 15.How much of the December 15 distribution is taxable as a dividend?

Question

Quizplus · Accepted Answer

The June 15 distribution of $20,000 is covered by the current earnings and profits of $21,000, leaving $1,000 of current earnings and profits. The December 15 distribution of $10,000 is covered by the remaining $1,000 of current earnings and profits and $5,000 of accumulated earnings and profits, totaling $6,000. Therefore, $7,000 of the December 15 distribution is taxable as a dividend.

Borneo Corporation Has $21,000 in Current Earnings and Profits and $5,000