9. A calendar-year corporation has negative current E & P of $500 and accumulate

Question

9. A calendar-year corporation has negative current E & P of $500 and accumulated positive 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 earnings and profits is $500

B. $0 of the distribution will be a dividend because current earning and profits are negative

C. $600 of the distribution will be a dividend because accumulated earning and profits is $1,000

D. Up to $600 of the distribution could be a dividend depending on the balance in accumlated earnings and profits on the date of the distribution.

Explanation / Answer

Answer: A. $500 of the distribution will be a dividend because total earnings and profits is $500.

Explanation: Since, before distributing any dividend from accumulated positive E&P, it is mandatory to write off current loss. So, loss of $500 needs to be write off from accumulated positive E&P of $1,000 and balance i.e. $500.

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