Chance Corporation has a $20,000 deficit in earnings and profits as of January 1,2016.During 2016,the corporation has current earnings and profits of $40,000 and makes a $70,000 cash distribution to its shareholders.What part of the distribution is taxable as dividend income to Chance's shareholders?
A)$- 0 -
B)$20,000
C)$30,000
D)$40,000
E)$70,000

Question

Quizplus · Accepted Answer

The taxable dividend is limited to the current earnings and profits of $40,000, as the deficit in accumulated earnings and profits is not considered.

Chance Corporation Has a $20,000 Deficit in Earnings and Profits