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

question 92

Multiple Choice

A calendar-year corporation has positive current E&P of $500 and accumulated negative E&P of $1,200. The corporation makes a $400 distribution to its sole shareholder. Which of the following statements is true?

• A) The distribution may be a dividend, depending on whether total earnings and profits at the date of the distribution is positive.
• B) The distribution will be a dividend because current earnings and profits are positive and exceed the distribution.
• C) The distribution will not be a dividend because total earnings and profits is a negative $700.
• D) A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in earnings and profits.

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Definitions:

Ultimatum Games

Represent a scenario in economic experiments where one participant proposes a division of resources, and the other can accept or reject the offer, which, if rejected, leaves both with nothing.

Heuristics

The brain’s low-energy mental shortcuts for making decisions. They are “fast and frugal” and work well in most situations but in other situations result in systematic errors.

Behavioral Economics

An area of economic research that examines how psychological, cognitive, emotional, cultural, and social factors affect the economic decisions of individuals and institutions.

Neoclassical Economics

An approach to economics focusing on the determination of goods, outputs, and income distributions in markets through supply and demand.