A Calendar-Year Corporation Has Negative Current E&P of $500 and Accumulated

question 80

Multiple Choice

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 earnings and profits is negative.
• C)$600 of the distribution will be a dividend because accumulated earnings and profits is $1,000.
• D)Up to $600 of the distribution could be a dividend depending on the balance in accumulated earnings and profits on the date of the distribution.

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Definitions:

Average Collection Period

calculates the average number of days it takes for a business to receive payments from its customers for invoices issued.

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.

Debt-To-Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity.

Equity Multiplier

A financial leverage ratio that shows the proportion of a company's assets that are financed by shareholder's equity.