Scarlet Corporation Has a Deficit in Accumulated E & P

Scarlet Corporation has a deficit in accumulated E & P of $500,000.It has current E & P of $350,000.On July 1,Scarlet distributes $400,000 to its sole shareholder,Lupita.Lupita has a basis of $95,000 in her stock in Scarlet Corporation.As a result of the distribution,Lupita has:

A) Dividend income of $400,000.
B) Dividend income of $95,000 and reduces her stock basis to zero.
C) Dividend income of $350,000 and reduces her stock basis to $45,000.
D) No dividend income, reduces her stock basis to zero, and has a capital gain of $400,000.
E) None of the above.