Kinney, Inc

question 18

Multiple Choice

Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA at the beginning of the calendar tax year. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's taxable income is $6,000 for the year. Kinney distributes $6,000 to each shareholder on February 1, and it distributes another $3,000 to each shareholder on September 1. How is Eric taxed on the distribution?

• A) $500 dividend income.
• B) $1,000 dividend income.
• C) $1,500 dividend income.
• D) $3,000 dividend income.

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Definitions:

Marginal Utility

The extra fulfillment or advantage a person gains by consuming an additional unit of a product or service.

Satisfaction

The feeling of pleasure or fulfillment that comes from achieving a goal or satisfying a need.

Marginal Utility

The increase in satisfaction or utility derived from the consumption of an additional unit of a good or service.