If a Distribution by a Corporation to a Shareholder Exceeds

question 194

True/False

If a distribution by a corporation to a shareholder exceeds the corporation's earnings and profits,the excess first reduces the shareholder's stock basis to zero and any remaining excess is classified as capital gain or ordinary income depending on the shareholder's holding period for the stock.

---

Definitions:

Write-Down

A reduction in the book value of an asset when its market price falls below its carrying value on the balance sheet.

Gross Profit

The difference between revenue and the cost of goods sold, representing the basic profitability of the products or services sold by a company.

Pretax Income

The income of a business before income taxes are deducted.

Understated

Describes a financial statement element that is reported at a figure less than its actual value, potentially misleading users of the statements.