Exit Corporation Has Accumulated E&P of $24,000 at the Beginning

question 54

Multiple Choice

Exit Corporation has accumulated E&P of $24,000 at the beginning of the current tax year.Current E&P is $20,000.During the year,the corporation makes the following distributions to its sole shareholder who has a $22,000 basis for her stock. $$\begin{array} { | l | r | } \hline \text { Date } & \text { Amount Distributed } \\\hline \text { April 1 } & \$ 20,000 \\\hline \text { Tune 1 } & 20,000 \\\hline \text { August 1 } & 15,000 \\\hline \text { November 1 } & 5,000 \\\hline\end{array}$$ The treatment of the $15,000 August 1 distribution would be

• A)$15,000 is taxable as a dividend; $5,000 from current E&P and the balance from accumulated E&P.
• B)$15,000 is taxable as a dividend from accumulated E&P.
• C)$4,000 is taxable as a dividend from accumulated E&P,and $11,000 is tax-free as a return of capital.
• D)$5,000 is taxable as a dividend from current E&P,and $10,000 is tax-free as a return of capital.

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Definitions:

Producer Surplus

The variance between the minimum amount producers are prepared to take for a product or service and the actual price they obtain in the marketplace.

Carpentry Work

The craft or activity of cutting, shaping, and installing wood for buildings, furniture, or other structures.