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Practice CPA®CPA TCP Practice Exam 5Question 48

Hard1 markMultiple Choice

Area II: Entity Tax ComplianceTCPEntity TaxC Corporation

CPA · Question 48 · Area II: Entity Tax Compliance

A C Corporation distributes cash of $50,000 to a shareholder. The corporation has Current E&P of $10,000 and Accumulated E&P of ($40,000) deficit. What is the amount of the dividend?

Answer options:

A.

$0

B.

$10,000

C.

$50,000

D.

$5,000

How to approach this question

Nimble Dividend Rule: If Current E&P is positive, distributions are dividends to that extent, even if Accumulated E&P is negative.

Full Answer

B.$10,000✓ Correct

IRC §316(a). Distributions are dividends if covered by Current E&P ($10,000), regardless of the accumulated deficit.

Common mistakes

Netting Current and Accumulated E&P when Current is positive.

Question 47 All questions Question 49

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