Maui Corporation Makes Two Distributions During the Current Tax Year

question 34

Multiple Choice

Maui Corporation makes two distributions during the current tax year: the first for $20,000 on February 1 and the second for $30,000 on August 1.Before consideration of the distributions, the corporation has $18,000 in current earnings and profits and $21,000 of accumulated earnings and profits.How much of the first distribution is taxable to the shareholders as a dividend?

• A)$20,000
• B)$18,000
• C)$10,800
• D)$7,200

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Definitions:

Net Operating Income

A measure of a company's profitability, calculated as gross revenue minus operating expenses, not including taxes and interest.

Break-even

The point at which total costs equal total revenues, resulting in no net loss or gain for the business.

Monthly Unit Sales

The number of units of a product sold in a particular month.

Break-even Point

The financial state in which total revenues equal total expenses, and there is no profit or loss.