A calendar-year corporation has deficit in current E&P of ($500)and positive accumulated 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 E&P is $500.
B)$0 of the distribution will be a dividend because current E&P is a deficit.
C)$600 of the distribution will be a dividend because accumulated E&P is $1,000.
D)Up to $600 of the distribution could be a dividend depending on net E&P (current plus accumulated E&P)on the date of the distribution.

Question

Quizplus · Accepted Answer

The amount of the distribution that can be treated as a dividend depends on the corporation's net E&P (current plus accumulated E&P) on the date of the distribution. Since the accumulated E&P is positive at $1,000, the corporation has potential to have a positive net E&P. Therefore, up to $600 of the distribution could be a dividend.

A Calendar-Year Corporation Has Deficit in Current E&P of ($500)and