Inca Company reports current E&P of negative $100,000 in year 1 and accumulated E&P at the beginning of the year of $200,000.Inca distributed $300,000 to its sole shareholder on January 1, year 1.How much of the distribution is treated as a dividend in year 1?
A)$0.
B)$100,000.
C)$200,000.
D)$300,000.

Question

Quizplus · Accepted Answer

The distribution is treated as a dividend to the extent of the accumulated E&P at the beginning of the year, which is $200,000. The current year's negative E&P does not reduce the accumulated E&P for the distribution made at the beginning of the year.

Inca Company Reports Current E&P of Negative $100,000 in Year