A Calendar-Year Corporation Has Deficit in Current E&P of ($500)and

question 74

Multiple Choice

A calendar-year corporation has deficit in current E&P of ($500) and positive accumulated 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 E&P is $500.
• B)$0 of the distribution will be a dividend because current E&P is a deficit.
• C)$600 of the distribution will be a dividend because accumulated E&P is $1,000.
• D)Up to $600 of the distribution could be a dividend depending on net E&P (current plus accumulated E&P)on the date of the distribution.

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Definitions:

Exclusive Right

A privilege or license granted to an individual or company to be the sole seller or producer of a specific product in a certain market.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since its acquisition.

Trade-In Allowance

The amount credited to the buyer by the seller when a buyer trades in an old item towards the purchase of a new item.

Accumulated Depreciation

The cumulative depreciation expense recorded for an asset from the time it was operational, thereby lowering its recorded value in the balance sheet.